Hancock Whitney Corporation Aktie

Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Ashleigh Wilshire, Head of Investor Relations. You may begin.

Thank you, and good afternoon. During today's call, we may make forward-looking statements. We would like to remind everyone to carefully review the safe harbor language that was published with the earnings release and presentation and in the company's most recent 10-K and 10-Q, including the risks and uncertainties identified therein. You should keep in mind any forward-looking statements made by Hancock Whitney speak only as of the date on which they were made. As everyone understands, the current economic environment is rapidly evolving and changing.

Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions but are not guarantees of performance or results, and our actual results and performance could differ materially from those set forth in our forward-looking statements. Hancock Whitney undertakes no obligation to update or revise any forward-looking statements and you are cautioned not to place undue reliance on such forward-looking statements.

Some of the remarks contain non-GAAP financial insurers. You could find reconciliations to the most comparable GAAP measures in our earnings release and the financial tables. Presentation slides included in our 8-K are also posted with the conference call webcast link on the Investor Relations website. We will reference some of these slides in today's call.

Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; Chris Ziluca, Chief Credit Officer; and Shane Loper, Chief Operating Officer.

I will now turn the call over to John Hairston.

Thank you, Ashleigh, and thanks, everyone, for joining us today. The second quarter of 2026 was another strong quarter of profitability, efficiency and return of capital to shareholders. We were pleased to add solid balance sheet growth on both sides of the ledger to an already excellent quarter. Compared to the same period a year ago, we were pleased to see EPS improvement of 13%, PPNR growth of 6%, a sixth straight quarter of improved commercial criticized loans, 5% growth in loans and 2% growth in total deposits. We were pleased to welcome another 15 net new bankers in the second quarter, bringing our total for the year to 42 against our annual goal of 50.

Focusing on the second quarter, on a linked quarter annualized basis, loans grew 10% and deposits 8%. As shown on Slide 9 of our investor deck, loan production was strong and line utilization improved. Growth was spread across every line of business, accepting mortgage. Our guidance for the full year remains unchanged at mid-single-digit growth. For deposits, the 8% annualized growth was related to an increase in interest-bearing money market accounts of $786 million, partially offset by a slight decline in see balances from maturities in the quarter. We've updated our guidance for deposits from low single to mid-single-digit growth for the year. Profitability, efficiency and returns continued to perform very well with a 1.42% ROA, efficiency ratio of 55.3% and ROTCE of 14.9%.

Top line revenue continued to cover significant offensive reinvestment and net interest margin improved modestly while substantially funding loan growth with core deposits. Expenses were well managed as nearly all our expense growth was due to the full quarter impact of robust banker additions in Q1 and merit increases to our overall team in April. We were pleased to secure regulatory and shareholder approval in July for the One Florida Bank transaction with an expected closing date of August 1. Mike will add additional comments in his remarks, but I will note, we have updated our guidance on Page 23 to provide fiscal year 2026 outlook, both excluding and including One Florida. In both cases, the second half of '26 guidance reflects a continuation of high profitability, strong capital and continuing growth.

Regarding capital deployment, our stated priorities remain in capitalizing a growing balance sheet, supporting dividends and completing the current 5% authorization by the end of this year. We are very pleased here at halftime of 2026 to see very solid performance and growth in alignment with our goals. We are very excited to welcome our new colleagues and clients from One Florida and only 10 days, augmenting our profitability and growth story.

With that, I'll invite Mike to add additional comments.

Thanks, John, and good afternoon, everyone. As John said at the onset, the company's performance in the second quarter was excellent. Net income for the quarter was $127 million or $1.55 per share compared to adjusted net income of $125 million or $1.52 per share in the first quarter. PPNR for the company was up 3% from the prior quarter to $178 million. Expressed as a return on average assets, this continues to be a solid 1.99%. Net interest income increased 3% this quarter. Our fee income business continues to perform remarkably well and expenses were up, but remained well controlled.

Fee income for the company was up $2.3 million or 2% adjusted for the net loss on the bond portfolio restructuring last quarter. The increase was driven by higher activity in our investment in annuity income and insurance as well as our trust business. These increases were offset by a decrease in our syndication fees and SBIC income, which can be somewhat unpredictable from quarter-to-quarter. Expenses remain well controlled, up 2% from the prior quarter and were primarily related to our annual merit increases and the impact of our new hires during the first half of 2026.

As expected, our net interest margin was up this quarter albeit at a slightly slower pace with a 1 basis point increase from 3.55% to 3.56%. Our earning asset yield was up 2 basis points and our cost of funds was up 1 basis point. In addition to a level of average earning assets were up $507 million from last quarter. Within the higher earning asset yield, we benefited from a higher yield on the bond portfolio and higher average earning asset levels, partially offset by lower loan yields. Within our total cost of funds, unfavorable other borrowing balances and rates were partially offset by a lower cost of deposits. As expected, the yield on the bond portfolio was up 12 basis points to 3.35% related to a full quarter's impact of the first quarter restructuring transaction, but also due to reinvestment of principal cash flows during the quarter.

Loan yields were down 2 basis points, mostly due to the impact of a 12 basis point quarter over-core drop in new loan rates, but this was partially offset by a healthy increase in average loans of $374 million linked quarter. Our cost of deposits was down 4 basis points to 1.43% for the quarter, due mostly to a lower rate on maturing CDs. We did increase promotional rate pricing on our interest-bearing transaction deposits in certain CD maturity buckets, which drove an increase in our end-of-period balances on those deposits. For the second half of 2026, we do expect the benefit from repricing maturing CDs will largely come to an end as new CD rates will likely be higher.

Turning to asset quality. Our criticized commercial loans improved for the sixth consecutive quarter, decreasing $30 million to $492 million. Nonaccrual loans increased $1 million to $114 million. Net charge-offs came in at 16 basis points, so down from prior quarters 19 basis points. Our loan loss reserves are solid at 1.42% of loans. We continue to expect charge-offs to average loans will come in at between 15 and 25 basis points for the full year 2026.

Finally, on Slide 20 of the earnings deck, you'll see our forward guidance for the remainder of 2026. For guidance, excluding OFB, you will see a number of revisions to our guidance, mostly moving to the upper end of our previous ranges. For guidance, including OFB, we expect loans and deposits to be up low double digits; net interest income up between 8% and 9%; fee income up between 6% and 7%; operating expenses up between 7.5% and 8.5%; and finally, PPNR up between 7% and 8%. These expectations do not include any meaningful revenue synergies from the acquisition, such as expanding wealth products and services to OFB clients.

Also, the cost savings will be fully realized by the time we enter 2027. And as mentioned, we anticipate a closing date of August 1. As we look forward to the second half of this year, we remain encouraged by the momentum across our franchise. While the operating environment continues to present challenges, our solid balance sheet, strong customer relationships and disciplined execution positions us well to deliver on our objectives for the remainder of this year and going forward.

I will now turn the call back to John.

Thank you, Mike. Let's open the call for questions.

[Operator Instructions] Your first question comes from the line of Michael Rose from Raymond James.

Just wanted to start on loan growth. Obviously, a very solid quarter, but I think what struck me was the almost 20% increase in quarter-over-quarter production, yet you had reiterated the stand-alone outlook for the year, which would imply maybe a bit of a slowdown to some degree. Is that just conservatism? Or is it competition where you're maybe seeing a little bit more pressure? Just looking to get a little more color on the puts and takes.

Shane, would you like to take that question?

Sure. And Michael, maybe give you a little bit broader context. When we think about our clients, they're still looking at the way that they're approaching their business as broadly stable. Majority of them are indicating kind of generally stable performance or steady performance with an outlook that's optimistic. But they're being really cautious. So right now, there's a lot of credit supply for a limited demand. And that's really where the competition is kind of creeping in.

we feel like that we did a great job with production this quarter. Loan growth was $588 million. We produced $1.5 billion in loans. That's up from $1.2 billion in the first quarter and really had strength in all of our segments, business banking, commercial middle market, consumer performed well and CRE is continuing to perform well. A lot of net growth supported with new originations, line fundings were up slightly this quarter. And then we saw normalized paydown and payoff activity.

So I really look at our growth for the quarter is really high quality, spread across all of our segments and geographies. Pricing, I know you'll probably ask about pricing. Pricing continues to be highly competitive. We're focused and disciplined in our pricing. But really just trying to step up and match off against the competition without giving too much so we can continue to grow the balance sheet.

Yes. And Michael, this is John. I'll add to Shane's comments. It's probably good to look at the first half of the year as a body of work in the second half as another body of work. And while the numbers for Q2, certainly were outstanding in one of our better quarters we've had in several years. A lot of that work did happen in Q1 and closed in early Q2. Hence, the average balances increases for second quarter a little bit better than they have in some quarters where we decide to grow well.

So I think if you look at the second half of the year, I wouldn't say we're being conservative. I think what Shane is telling you is exactly what we expect. But we do have to remember in the face of potential rate increases and inflation that while it may be well behaved, certainly there are macro conditions that could cause it up. We could see some dampening of appetite. So we want to be realistic in our guide to mid-singles for the year.

Your next question...

Michael, do you have a follow-up?

Apologies. We can bring Michael back.

Did you have a follow-up, Michael?

All right. Sorry about that. I couldn't get off mute. Maybe just as a follow-up, Mike, maybe if you can talk about some of the deposit competition and what you're seeing there? I know Shane touched on the loan side. It looks like the NIB mix did tick down 60 or 70 basis points Q-on-Q. Can you just talk about the ongoing ability to fund loan growth and just competitive trends in and around your markets?

Sure, I'd be glad to, Michael. So I think the best way to describe the deposit pricing environment is absolutely as competitive, but at least in our markets, it's also pretty rational. And by that, I mean, we're in an environment now where there are banks that are experiencing more demand for loans. And so people certainly like to fund their loan growth with deposit growth, and we're no different. So I think you're seeing the elevation in deposit costs that have been talked about for the past couple of months, really the past couple of quarters. So it's certainly here and now.

And for us, one of the things that we're most pleased with about the quarter was not only the arrival of pretty significant organic balance sheet growth. But the fact that we're able to fund that growth really dollar for dollar with deposits. So that really is what we're trying to achieve. And as we think about the second half of the year, the plan is to continue to do that. So while you alluded to a little bit of a step down maybe in the level of loan growth for the second half of the year, you probably should also note that there's a little bit of a step-up in deposit growth for the second half of the year.

So I think where you'll see us land at the end of the year is with loan growth pretty much matched off dollar for dollar with deposit growth. That is exactly the way we'd like to manage our balance sheet now as well as going forward. So hopefully, that was helpful.

Your next question comes from the line of Catherine Mealor from KBW.

Just one follow-up on just deposit pricing. You talked about an increase in deposit growth at the end of the quarter just from some promotional interest-bearing transaction. Can you talk about the cost around what that looks like and as we grow your interest-bearing transaction accounts, where do you -- outside of any rate -- changes in rates, where do you think that trends to with this promotional deposits coming in there?

Yes. Sure, go ahead -- to Catherine. So again, if you look at the second quarter, a little bit of an unusual situation where most of the deposit growth was really back ended towards the end of the second quarter. So we had the increase in end-of-period deposits of about $550 million, but the average for the quarter was actually down about $50 million or so. So going forward in the second half of the year, you'll see that end-of-period growth pretty -- match pretty good the average growth in the third and fourth quarter.

So what we did in the second quarter as we began to really focus on bringing in deposits. And there were good promotional things that we did. So we have an 11-month CD at 3.85% that we had been offering in Florida and Texas that we decided to expand that to kind of the core of the franchise. So Louisiana, Mississippi and Alabama. And that did prove to be pretty successful.

We also have a money market offering at 3.75% for some existing customers and then a 4% money market offering for new customers. So in addition to that, we're offering a promotional CD in Orlando related to OFB. So those are the promotional deposit pricing offerings that we have in place. And again, those were all pretty successful in the second half of the second quarter, and we think they'll be pretty successful going forward as well.

So it's fair to say is that you get the full impact of that -- is it fair to say we're at a bottom for deposit costs, and so that will just start to increase as we move into the back half of the year?

Yes, I think so. I think as we look at the second half of the year -- yes, I think as we look at the second half of the year, you'll see NII continue to grow. It may not grow as much as it did in the second quarter, but it certainly will grow in the second half of the year. I think our NIM will be flat to slightly up. And certainly, we'll see an increase in deposit costs as well as our cost of funds.

So in the second half of the year, our cost of deposits could be up around 10 basis points or so. And that's from the second quarter through the fourth quarter. We'll continue to reprice bonds and fixed rate loans higher. That's a big obvious tailwind that we have. And then certainly, the biggest tailwind will be the continuation of organic balance sheet growth in the second half of the year. So loans growing at mid-single digits along with deposits.

If I might just -- just one more thing on the margin just to tie it together. If I look at loan yields, those were flat or actually down a few basis points linked quarter, in your new loan yields coming in, it looks like 6.04% is still higher than that 5.60% average, but that's come down a lot over the past couple of quarters. So do you still think we're in an environment where we can move that 5.60% higher over the back half of the year?

Yes. I think with respect to the loan yield, what you'll see is some modest increase. We got a nice head start in July with SOFR being up about 4 basis points coming into the month, so that will certainly be a little bit of a tail. But if we look at our loan yield over the second half of the year, I do think we'll see a little bit of an increase, call it, 4 to 5 basis points maybe.

Your next question comes from the line of Feddie Strickland from Hovde Group.

Just wanted to follow on Catherine's line of questioning on the loan yields. Specifically, I wanted to ask about middle market, C&I, maybe whether there's been any kind of abatement in competition in that space? Or is it still pretty tight?

This is Shane. It's very tight. As I was talking with Michael, the clients are really managing pretty well through the uncertainty. There is a pretty fair amount of loan demand, but there's a much, much higher level of supply. So to get those quality deals and grow responsibly, it is very tough right now in terms of pricing. We've improved our pricing model and are talking with each one of our bankers, ensuring that we're getting the best pricing that we can get. But we're also trying to win the deals to make sure that we're growing the balance sheet, and we're doing it in a high-quality manner. But it's very tough right now. Bankers are doing a great job, calling and saving deals that we currently already have on the books and bringing on new deals.

Got it. Appreciate that. And just switching gears, noninterest income. It looks like you raised the guide up a bit. Is there a particular component driving better expectations there, whether it's trust or the investment in new insurance line? Or is it just -- kind of what you've seen so far this year. Just curious maybe what you're seeing that led you to increase that a little bit.

Yes. We continue to be very proud of the wealth management execution and progress that they're making, both in the broker-dealer and across the trust platforms. We do have a little bit of a tailwind from the stable deal from last year. But overall, the penetration into the current client book and new business One is performing very well and really have to give kudos to the wealth management team. Card and merchant services has always been a pretty strong, suit for us and that continues to perform well. And when we look at secondary mortgage, it's pretty much in line with expectations. Like to see more syndication fees as we move forward. And I know that team is working on that hard as we go forward. But the wealth management is really performing, and I think that's a result of the investments we've made really over the last 5 to 8 years and just skills and process and tools and capabilities.

Your next question comes from the line of Stephen Scouten from Piper Sandler.

I'm curious briefly the changes in the CECL methodology you mentioned in the presentation, can you give us any additional color there on what kind of precipitated that if that was some of Moody's just worsening the scenarios overall? Or what kind of drove that change?

Yes, Stephen, this is Mike. I'll start, and certainly, Chris can offer some color if you'd like to. But really, what we saw with new scenarios was the baseline becoming more conservative than it was before. I think if you go back a quarter, so it was pretty apparent that the baseline scenario probably didn't fully include maybe the impact of what's going on in the Middle East. Certainly, now it does. So we felt it was appropriate to go ahead and add a little bit more emphasis to the baseline and to round things out, obviously, to the slow growth scenario. So we went from 40-60 to 50-50. But it's really just as simple as that.

Got it. Very helpful. Okay. And just on the pace of hiring, obviously, you're getting very close to that 50-person goal already here halfway through the year, what have you. what sort of upside to that number could there be? And would you extend much further beyond that 50-person headcount if it was available, even if it meant maybe the efficiency ratio going to a tick higher in the near term, how would we think about the push-pull there on investment timing?

This is Shane. Thanks for the question. This is a bright spot. I mean we have had great success this year. We're at 42 against our 50 overall. We feel very confident in the 50 And I think as we look forward, we will continue to be focused on opportunities that come up. Our bankers are performing as we expected that momentum in Flywheel is beginning to build. We're seeing really good production. I think 26% of the growth for the quarter was out of new bankers that we've hired.

So really beginning to see the momentum take place. Very proud of the leadership team that's been executing this recruiting that started back in the fourth quarter of '25, really working on bringing new bankers to the company. So I feel good about the 50, and we'll look forward to opportunities that present themselves.

Okay. And just -- I mean, do you think there's -- I mean, is there an impediment to going much beyond that, just from an expense perspective? Would you want to space it out kind of more ratably or just opportunistic irrespective of the timing if good people come up?

Yes, I don't think we have a specific number, but we know what it costs to bring on a new banker in the time that it takes for them to get accretive. And we feel like we've got room to add the ones that we need to add.

And Stephen, you'll note that we did increase the guidance around operating expenses, excluding OFB. And I think some of that was a little bit of a nod to the potential that we could add a few more people potentially.

Your next question comes from the line of Brett Rabatin from Stonex Group.

I wanted just to talk about the franchise kind of post the One Florida deal and just see if there were thoughts for maybe additional expansion in Florida. And then post you bulking in Orlando, is the way to think about the organic growth level of the franchise from here? Have we moved that up several percent with some of the recent hires in Texas and Florida? Or just any thoughts on how you guys view yourself as in terms of a growth company going forward?

Yes. Thanks for the question. This is John. I'll start and the team can jump in there if they want to add more color. But obviously, the initial focus with the August 1 close is in welcoming that new book of clients and those new team members getting them comfortable over the course of the next several months as we focus on integration. And that will be mid to late Q4 to get that integration completely wrapped up.

So really, the back half of the year in terms of the expanded market in Orlando, is about acclimating the team and getting people comfortable. And then as we move into '27, we'll talk a little bit more about what expectations are in Orlando moving forward. A number of the team members there are quite familiar with surrounding markets. We've obviously shared, I think, on a call or 2 past our desire to build up a bigger book in Jacksonville. But really, it's a little early to share kind of what that plan may be. And frankly, as soon as we get the integration done and in time for the January call, I think we're able to address that more.

What I can share is that several years ago, as we talked about, I guess, several 2 years ago, we talked about the pivot to growth. It was a very deliberate intent to hire talent in core markets where it became available to us. To find good, experienced team members to add and that we've been successful doing that. But to really double down and adding folks in markets that we didn't have as big a presence but had a very high organic growth rate expectation. And that's really where the focus in Texas and Florida came from. And so as we move into the next couple of years, I think we'll be in a position to talk a little bit more around what the macro looks like and how we might be able to do a little better over time.

But at this point in time, we're really trying to sell or share the mid-single-digit expected compounded annual growth rate kind of as our target. And then if the flywheel chain mentions yield something better than that, we'll talk about that when we get there. But our focus right now is acclimating our new team and our clients, covering loans with the back half of this year with deposits, turning DDAs into a little bit better growth trajectory with time because we're never going to be adding IBTs and ensuring that the team match we've already added get as productive as they can as quickly as they can.

Okay. That's helpful, John. And then the other question I had was just around capital and I think you bought back a little over 700,000 shares this quarter with the existing 2 million share remaining. Would that -- would you expect to be as active in the back half of the year as you were in the second quarter?

Yes, Brett, this is Mike. So the intent right now is to exhaust the buyback authority. So we have the 5% in place for this year. We have the 2 million shares remaining. So again, the thought is now that we'll exhaust that authority over the course of the second half of the year, probably on kind of a pro rata basis between the third and fourth quarter. And then as far as next year, we'll kind of cross that bridge when we come to it. Certainly, I think it's likely that we'll have some authority in place next year. That's certainly up to the Board. The level is something we'll talk about when we get there, though.

Your next question comes from the line of Casey Haire from Autonomous.

Yes. Great. So one more on NIM. Apologies, but just wondering how much purchase accounting is in this guide here?

Well, the guide, excluding OFB, which is again for flat to slightly up, obviously, it doesn't include any of the purchase accounting related to OFB. And honestly, Casey, I mean, it's not a significant number. So it really isn't going to move the needle very much at all. The guidance, including OFB would be really the same.

Okay. All right. So -- okay. Got you. And then -- yes. Okay. And then just touching on capital management. So it sounds like you guys are going to execute on the authorization this year. I think you guys talked about rebuilding capital to pre-RFP levels. Just wondering the time line around that and what that means for share buybacks in '27 and -- yes, just share buybacks appetite post '26.

Yes. So obviously, you can see where our capital ratios are at 6/30 and we also disclosed where we think they'll be once we fold in OFB in August. So our TCE will be down about 120 basis points, common Tier 1 will be down around 170 or so. Really, for the back half of the year, those ratios probably don't change a whole lot. That's inclusive of the organic balance sheet growth that we referred to, that's part of our guidance, and it also includes the buybacks. So this notion of kind of "rebuilding capital", actually not so much rebuilding capital. It's really just kind of disclosing that it would take us about 8 quarters, all things equal for our capital ratios to kind of get back to pre-deal levels. It doesn't mean that, that's the intent of what we plan on doing. That was really just a data point, if you will.

We feel very comfortable with TCE in the 9% range, common Tier 1, somewhere around the 12% range. So if we didn't do the buybacks in the second half of this year, we'd essentially be at those data points that I just mentioned. So going forward, again, and not to make this overly complex, but going forward, we're planning on exhausting the buyback authority. And then in '27, again, as I mentioned a little bit earlier, that's something we'll disclose when we get there.

[Operator Instructions] Your next question comes from the line of Christopher Marinac from Brean Capital.

John, sort of seemingly fast approval from One Florida. Does that make it interesting to consider additional M&A? Or would you not surprised by how quickly this happened?

I don't think we were surprised by how quickly it happened. I mean, that's pretty much the pace that transactions have been approved by the regulatory bodies that we -- necessarily an approval from of late. And we expect that to be a rapid approval. And so I think we were on previous the time line we expected and guided to -- I don't know if we talked about in the initial disclosure, what our expectations were on integration, but that looks like it's going to be mid to maybe later part of Q4. So a pretty rapid integration as well. So I think it's fair to say -- Mike, do you agree with pretty much the time line is exactly what we thought and expected it to be?

Yes, very much so. I think in this environment where the regulatory focus seems to be more accommodative to these types of transactions. Certainly, not surprised that we'll be able to do this pretty quickly. It's an extremely clean transaction. Rather small deals. So again, the quick approval and time line to integration was something that we certainly planned for. So no surprises there.

And Mike, just to reiterate what you said earlier, I think that you will have the cost takeouts out by the end of the fourth quarter. So you start '27 with those behind you?

That's correct. So when we start the new year, the cost saves will be fully reflected.

Great. Good deal. Thanks for hosting us today. I appreciate it.

At this time, there are no further questions. I would like to now pass the call back to Mr. John Hairston for closing remarks.

Okay. Thank you, Jay, for moderating the call. Thanks, everyone, for your attention and time, and we look forward to seeing you on the road very soon.

This concludes today's call. Thank you all for attending. You may now disconnect.

Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded.

And I would now like to introduce your host for today's conference, Kathryn Mistich, Investor Relations Manager. You may begin.

Thank you, and good afternoon. During today's call, we may make forward-looking statements. We would like to remind everyone to carefully review the safe harbor language that was published with the earnings release and presentation and in the company's most recent 10-K and 10-Q, including the risks and uncertainties identified therein. You should keep in mind that any forward-looking statements made by Hancock Whitney speak only as of the date on which they were made. As everyone understands, the current economic environment is rapidly evolving and changing.

Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions, but are not guarantees of performance or results, and our actual results and performance could differ materially from those set forth in our forward-looking statements. Hancock Whitney undertakes no obligation to update or revise any forward-looking statements, and you are cautioned not to place undue reliance on such forward-looking statements.

Some of the remarks contain non-GAAP financial measures. You can find reconciliations to the most comparable GAAP measures in our earnings release and financial tables. The presentation slides included in our 8-K are also posted with the conference call webcast link on the Investor Relations website. We will reference some of these slides in today's call.

Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; Chris Ziluca, Chief Credit Officer; and Shane Loper, Chief Operating Officer. I will now turn the call over to John Hairston.

Thank you, Kathryn, and thanks to everyone for joining us this afternoon. We are pleased to report a solid start to 2026. Our adjusted ROA was 1.43%, ROTCE was 14.64% and EPS was $1.52, all improved from prior quarter. Adjusted EPS compared to the same quarter last year increased over 10%. We are very excited to welcome 27 net new revenue producers to our strong banking team, and we expect to build on the momentum we have to generate meaningful balance sheet growth and profitability improvement over the rest of 2026.

We achieved another quarter of solid earnings with NIM expansion and efficiency ratio of about 55%, consistent strong fee income and well-managed expenses. Net interest margin expanded 7 basis points this quarter due to higher securities yields following our bond portfolio restructuring and lower cost of funds that outpaced the impacts of lower loan yields in this rate environment. Loans grew $33 million or 1% annualized. Loan production totaled $1.2 billion, down from last quarter, but up $365 million compared to the same quarter last year. Historically, first quarter loan growth is seasonally softer, but average balances were up $250 million over fourth quarter. We anticipate average growth to improve as the year progresses with a strong pipeline and continued success in adding bankers. Our guidance of mid-single digits for the year for loan growth is unchanged.

Deposits were down $198 million or 3% annualized due to seasonal public funds outflows. Interest-bearing public funds decreased $280 million, and public fund DDAs decreased to $75 million. Excluding the impact of public fund DDA outflows, DDAs would actually have been up $45 million. DDA mix ended the quarter at a very strong 36%. Interest-bearing transaction and savings accounts were up $261 million, with higher balances driven by competitive products and pricing. Retail time deposits were down $149 million due to maturities during the quarter. We continue to enjoy a healthy CD renewal rate of about 85%. We have not changed our guidance on deposits, as we still expect balances to be up low single digits from 2025 levels.

This quarter, we continued to proactively return capital to shareholders through repurchasing 1.4 million shares of our common stock and increasing our quarterly cash dividend 11%, now standing at $0.50 per share. Additionally, we deployed capital through the previously announced bond restructuring effort, which was completed in January. We ended the quarter with a solid TCE of 9.93% and a common equity Tier 1 ratio of 13.3%.

Despite market volatility in an emerging scenario of flat rates, we remain optimistic and confident for our growth prospects for the rest of 2026. We're closely monitoring macroeconomic trends and indicators, including both nationally and within our footprint. While the environment remains dynamic, our ample liquidity, solid allowance for credit losses of 1.43% and very strong capital keep us well positioned to navigate challenges and support our clients in really any economic scenario.

With that, I'll invite Mike to add additional comments.

Thanks, John. Good afternoon, everyone. As John said at the onset, the company's performance in the first quarter was exceptional. Adjusted for the net loss in the bond portfolio restructuring, net income for the first quarter was $125 million or $1.52 per share compared to $126 million or $1.49 per share in the fourth quarter.

As shown on Slide 20 of the investor deck, we remain confident in the guidance provided at the beginning of the year and have not made any changes this quarter. We are, however, now assuming no rate cuts throughout 2026, with no significant impact to NII or our NIM.

PPNR for the company was down slightly from the prior quarter or about 1% to $173 million. Expressed as a return on average assets, that continues to be a solid 1.98%. Net interest income increased 1% this quarter. Our fee income business continues to perform exceptionally, and expenses were up, but remained well controlled.

Fee income adjusted for the net loss on the bond portfolio restructuring was essentially flat with last quarter, down only $1 million. The slight decrease was driven by lower specialty income, which tends to be somewhat unpredictable quarter-to-quarter. Expenses remained well controlled, only up 1% from last quarter. Much of this increase was from seasonal increases in payroll taxes and related benefits.

We remain focused on making thoughtful investments in revenue-generating activities while balancing expense growth with top line revenue creation. As expected, our NIM was up 7 basis points this quarter to 3.55%, driven by a reduction in our cost of deposits and a higher yield on our bond portfolio, partly offset by lower loan yields following 2 rate cuts in the fourth quarter of last year. Our overall cost of funds was down 8 basis points to 1.44% due to a lower cost of deposits and a better funding mix. Our cost of deposits was down 10 basis points to 1.47% for the quarter, with the cost of deposits down to 1.46% in the month of March.

During the quarter, we reduced promotional rate pricing on our interest-bearing transaction accounts and retail CDs. In 2026, we expect CDs will continue to mature and renew at lower rates, although the rate advantage will diminish over the year in a flat rate environment. Our earning asset yield was down 1 basis point, with loan yields down 13 basis points following the rate cuts in the fourth quarter. Our bond yields were up 25 basis points related to the quarter's restructuring transaction. Average earning assets were up $100 million, driven by higher average loans, partly offset by a lower level of [ agri ] bonds.

The yield on the bond portfolio, as mentioned, was up 25 basis points to 3.23% related to the quarter's restructuring transaction. The transaction contributed 4 basis points to our NIM expansion this quarter. As a reminder, the first quarter did not include a full quarter's impact from the transaction. We expect the full quarterly increase in bond yields will approach 32 basis points, and the annual contribution to NIM will be about 7 basis points.

Aside from the restructuring transaction, we reinvested $181 million back into the bond portfolio at higher yields. Loan yields, as mentioned, were down 13 basis points following the rate cuts in the fourth quarter of 2025. The total fixed rate was unchanged from last quarter at 5.28%, and the total variable rate was down about 14 basis points. Total new loan rates were down 10 basis points quarter-over-quarter, but that was partly offset by an increase in average loans of about $250 million, linked quarter.

For the fifth consecutive quarter, our criticized commercial loans improved, decreasing $13 million to $522 million. Nonaccrual loans increased $6 million to $113 million. Net charge-offs came in at 19 basis points, so down from the prior quarter's 22 basis points. Our loan loss reserves are solid and unchanged at 1.43% of loans. We expect net charge-offs to average loans will come in at about 15 to 25 basis points for the full year.

Lastly, a comment on capital. Our capital ratios remain remarkably strong, even with the proactive capital deployment we completed during the quarter through the bond restructuring transaction, share repurchases and an increase in our common cash dividend. We expect that share repurchases will continue at similar levels throughout the year. Changes in the growth dynamics of our balance sheet, economic conditions and share valuation could impact that view.

I will now turn the call back to John.

Thanks, Mike. Let's open the call for questions.

[Operator Instructions] And our first question comes from the line of Michael Rose with Raymond James.

Maybe we can just start on loan growth. I think that's the one piece of the story that investors are really looking forward to see and pick up here as we move through the year. Certainly understand the elevated paydowns, looks like originations that were still pretty good in what is typically a seasonally weaker quarter. But it does look like a lot of the growth was maybe driven this quarter by higher [ SNC ] balances.

So maybe, John, is there a way to kind of map out what we should expect for loan growth in the back half of the year? I know you have the guidance, but more specifically, what gives you confidence that you can actually begin to see some real net growth and for it to pick up here? Because I think that's a big linchpin for investors.

Sure, Michael. Thanks for the question. I'm going to let Shane tackle that question.

Thanks, Michael. So our first quarter loan growth was $33 million, and that, I believe, reflects solid underlying momentum. We produced about $1.2 billion in loans, and that's up from $850 million from a year ago and really saw strength across business banking, commercial, middle market, health care, commercial finance and CRE.

That net growth, as you articulated, was moderated though by some normal portfolio dynamics. So we had mortgage and consumer amortization and some planned paydowns in some of our larger credits across CRE, health care and our specialty lines. That all was anticipated. And from the outset, we've talked about indicating growth would be more weighted towards the mid and back half of the year.

So if you look forward, I think we're positioned to deliver the mid-single-digit full year growth. Geographic markets are continuing to build momentum. Our CRE production is ahead of plan. Business banking is growing consistently. And health care and commercial finance pipelines remain strong.

Really importantly, though, we've hired 27 net new bankers, as John mentioned, with more coming in the second quarter. And our prior year hires are now ramping up to create a flywheel for production and growth. So I think if you take that together, the production, funding timing, banker productivity puts us in a good position for the balance of the year. And we're starting this first quarter in a positive place. Even though it's not a significant number, but compared to last year, we were in a deficit in the first quarter. So we feel like we're in a really good position to be able to leverage production in new banker hires as we go through the back half of the year.

Michael, this is Mike [indiscernible] seasonal perspective, you're right. The first quarter is usually the lowest quarter for production in terms of seasonal impacts. But again, as a reminder, as we go through the year, that production tends to pick up from a seasonal perspective. And the fourth quarter is usually our best growth quarter. So we had that momentum that was started this quarter. And certainly, the intent is to build on that as we go through the year.

Okay. That's helpful. I appreciate it. And then maybe just as my follow-up, Mike, I certainly hear you on the pace of buybacks here, at least in the near term. Obviously, there's some [ B3 ] endgame and GSIB reforms that are out there for the larger banks, but I think a lot of banks are -- smaller banks are talking about maybe lower CET1 ratios than they might have contemplated before. Can you just give us an update on what the -- what your ultimate target is for CET1 and how we should think about maybe a year-end number as you balance repurchases and growth?

Well, the way we think about it is if you look at the slide that we have an [ error ] around our guidance and specifically, the CSOs, we give some targets around certain profitability metrics, but as importantly, TCE. And as a reminder, the CSOs or style toward achievement in fourth quarter of '28. So for TCE, we think that somewhere between 9% and 9.5% is a target that we can achieve at that point.

And then if we look at CET1, that companion number is probably between 12% and 12.5% or somewhere in that range. So those are the levels that we think we can kind of aspire to by the end of '28. As you know, I mean, we're accruing a lot of capital as we kind of go through each quarter. But we are doing things to proactively manage that capital.

Last year, we bought Sabal Trust Company for cash. We affected the bond restructure this past quarter. We've consistently increased the common dividend. As John mentioned on the opening comments, we increased by $0.05 per share per quarter, so 11%. So those kinds of efforts, especially around buybacks and addressing the common dividend will certainly continue going forward.

And certainly, last but not least, the first and best use of capital is to provide for organic balance sheet growth. So as we grow our balance sheet going forward, we think we can have a pretty good shot at hitting the capital targets I mentioned.

And our next question comes from the line of Matt Olney with Stephens.

Just want to follow up on the commentary around adding the new bankers. I think you mentioned there were 27 net new bankers. Would love to hear more about these new hires and their backgrounds and what type of lending they'll be focused on? And what geographies?

Sure, Matt. This is Shane. I'll give you some commentary on that. So based on what we consider from an internal benchmarking, these new bankers will typically begin contributing loan growth within kind of their first 24 -- or 12 months. And they're really meaningfully additive in 12 to 24, and then strong productivity in 24 to 36.

So this really is something that matters in 2 ways. The 27 net new bankers in the first quarter with additional hires planned in the second quarter supports incremental production as the year progresses. The bankers hired in '24 and '25 are now entering their prime growth year. So we feel like that's going to be a really nice compounding effect as the new hires ramp up.

So when you think about where we've hired bankers from, it's really from all different types of entities. We've hired a number of bankers in Texas. Probably, the majority of the bankers are hired there. I think on the fourth quarter call, I talked about hiring, our target to be 60% business bankers and 40% being commercial and middle market. We've actually exceeded that. 70% of these new bankers are in our business banking area, which is the much more granular and higher spreads, more deposits segment in our portfolio and 30% in commercial and middle market.

So I feel like this gives us a real good flywheel as we go into '26 with bankers hired in '24 and '25 producing more significantly as the new bankers are coming on in '26. Our process is strong. It's leader driven. We began that new process in the fourth quarter of '25, that's paid big dividends. And we're going to continue to add bankers looking towards that 50 net new for '26.

Okay. That's helpful. Appreciate all the color there, and it's great to see some good progress there. Follow-up question, I guess, on the -- more for Mike on the net interest margin, we saw some good expansion this quarter. You noted the securities restructuring, a big driver there. Any more color on the margin from here as we go throughout the year?

Yes. Thank you, Matt. So as we kind of talked about on last quarter's call for the year, we had talked a little bit about margin expansion in the range of 12 to 15 basis points, and that would be from fourth quarter of last year to the fourth quarter of this year. So based on where we are now and what we achieved in the first quarter and what we know we can [indiscernible] the last 3 quarters of the year, remaining 3 quarters, we're pretty confident about hitting that target and maybe even some upside toward the upper end of that range.

Certainly, that -- it's very dependent upon us hitting our targets around loan growth, so the mid-single-digit growth year-over-year. We also have, obviously, a head start, if you will, with the bond restructure. In addition to that, we have just under $1 billion of principal cash flow yet to come from the bond portfolio. That will come off at about [ 376 ] and go back on at, let's just say, [ 425 ] or better. So year-over-year, we're looking at about a 51 basis point improvement in the yield on the bond portfolio. And again, that's fourth quarter of last year to fourth quarter of this year.

And then finally, we still have some ability to reprice CDs lower across this year. We kind of talked last quarter about year-over-year, about a 16 basis point drop in our cost of deposits. We were down 10 basis points in the first quarter. So 6 over the remaining 3 quarters certainly seems doable even without the benefit of any Fed rate cuts.

So in the CD front, we have over the course of the year, about $7 billion, maturing $5 billion for the last 3 quarters, coming off at around [ 348 ], going back on at about [ 310 ] or so. Now the benefit of repricing those CDs will diminish as we kind of go through the year. And as we move into next year, again, without any benefit related to any rate cuts, that option of continuing to reprice CDs lower will largely have kind of played out. But certainly, as we think about our balance sheet and the things we're doing to organically grow it that's where the benefit of loan growth will kind of replace the benefit that we had from repricing CDs over the last couple of years.

And our next question comes from the line of Catherine Mealor with KBW.

Just as a follow-up on the margin. As we think about loan yields, do you feel like loan yields from this [ 561 ] level should be increasing as we move through the year, just given where new loan pricing is and the back book repricing opportunities? Or is competition leaving that more flat, and really, the upset in your margins coming from the CD and the bond piece that you just talked about?

Yes. The benefit that we talked about, Catherine, related to the NIM is really coming from the 3 things I mentioned, so the loan growth, the bond portfolio contribution and the lower cost of deposits. Without any rate cuts or increases for next year, we're looking at the yield on the loan portfolio to largely remain kind of where it is right now, so in that [ 560 ] to [ 562 ] range. Certainly, we have to deal with competition. But certainly, our ability to grow loans and maybe improve the mix of the loans that we're growing, we think is enough to kind of keep that loan yield more or less where it is now.

Great. And then, would you say -- it was interesting to me that with taking rate cuts out, you didn't increase your NIM guide, but it feels like you're more just comfortable in hitting perhaps the high end of the range without any cut. Is that a fair way to think about it? And is there anything changed?

Yes. Right. It really is, Catherine. It's a great observation. And as we think about the guidance for this year, again, we're not changing any of the guidance. But I would certainly give a little bit of a bias toward the upper end of the ranges, certainly on the revenue component, so NII and fees, and then expenses as well.

So we're thrilled to hire the 27 net new revenue producers for this year. The goal for the year, as Shane mentioned, is still around 50, but certainly higher than those folks sooner rather than later. Probably puts us in a position where the guidance for expenses is also kind of in the upper end of that range.

Our next question comes from the line of Christopher Marinac with Brean Research.

I want to ask about the new loan yield. I know you disclosed the figure in the back of the deck. But I was curious if that yield may, in fact, get higher given how rates had acted and perhaps a little bit of movement in spreads late in the quarter? Just thinking about where 2Q is going to go.

Yes, Chris, again, without any rate action contemplated, I mean, certainly, I think the new loan yield more or less should stay in the neighborhood of where it is right now. That's certainly going to be impacted by any changes in mix and any changes between the contribution of fixed loans versus variable loans. So kind of quarter-over-quarter, that total new loan rate was down about 10 basis points. The rate on fixed rate loans was up around 25. The rate on variable rate loans was down about that same level. And that was obviously because of the 2 rate cuts that happened in the fourth quarter of last year. So I think somewhere going forward in that same neighborhood is probably good territory for modeling.

Okay. And then if we think about sort of possible upgrades from the criticized book, do you see some of that playing out? Could that be a further tailwind this quarter and next quarter?

Yes. Thanks, Chris. What we've been seeing is a little bit less in the way of inflows, which has been really nice to see. And so as I think I mentioned on some earlier calls, it usually takes 4 to 5 quarters on average for a credit to kind of get to a point where either it refinances away or improves such that we can kind of upgrade it.

And one of the things that I've been kind of watching is some of our lower pass categories. And what we're seeing is a little less inflow in the lower pass category, especially what we consider kind of watch credits. So I think what we'll see is probably a little bit more of a flattening of our criticized loans rather than continued improvement. I'd like to think that we can make some headway there, but we are still operating at a pretty low level in criticized loans. So I'm really pleased with the progress that we've made over the past several years in that regard.

The next question is from Casey Haire, Autonomous Research.

Great. I wanted to touch on the loan growth. Sorry, I may have missed this, but -- so Slide 9, I understand that the guide is that loan growth builds from this pace in the first quarter here. But just wondering, the prepayments of [ 820 ] in the first quarter. I'm not sure if I heard you guys talk about what you assume for prepayments going forward?

Casey, in terms of unexpected prepayments, or just planned?

Right. So you guys like -- unexpected, right, that you have the scheduled payments and maturities of [ 473 to 820 ] is what really hurt the loan growth this quarter. And I'm just -- I don't know if I heard you say what you expect that to be going forward to deliver your mid-single-digit loan growth.

Yes. We have our production numbers kind of detailed out for the rest of the year. And in those production numbers, we have some contracts in terms of what is expected in terms of payoffs. And I think I've said a number of times, we have a number that we kind of factor in for unexpected payoffs in terms of additional production. So we really kind of saw some payoffs at the end of the quarter, and we saw a little bit of production actually pushed to the second quarter. So we've got a really good start here in the second quarter, and that kind of impacted our numbers a little bit in the first quarter. But we -- I don't have a specific number to give you, but I can tell you that it's planned into our overall production reconciliation.

This is John. I'll add a little bit more color. The horsepower behind the mid-single-digit loan growth number for the year is really production improvement. The unscheduled payments could certainly bounce around a little bit, but the expectation would be that they don't swiftly go way up or way down. So to be very clear, the expectation is all those factors Shane and my comment earlier, leading to production going up in the range of the types of numbers we talked about mid last year when we discussed what to expect for '26 and then for '27. Did we answer your question? Or would you like to redirect?

The next question is from Brett Rabatin from StoneX.

Wanted to ask on the fee income guide. I know that syndication fees and FDA and FDIC and others are somewhat hard to predict. But just thinking about the guidance for the full year of kind of that 5% range. It was -- that's fairly flat from the first quarter. So I was just curious if you could maybe walk through what you guys see as the drivers on the fee side this year as you're thinking about that? And if there's any additional momentum maybe to be gained on the trust and wealth management side?

Yes. Thank you. Fee income is performing in line with our expectations, and I do believe that it supports that 4% to 5% growth for the full year of '26. [ Expect ] our fees in the first quarter were treasury and business service charges. We're a strong merchant. We had one of our best months in merchant. And I think that ties out to our business banking focus and the leadership and sales activities there. SBA continues to be strong. Syndication fees, I think, will have opportunities throughout the year to continue producing there. And we've got a great team that's focused on that.

And you mentioned wealth management. I just see continued momentum there. I mean, that's now 35% of our total noninterest income. We've got a lot of the pivots that we've made over the last number of years are really paying off. We've got some enhanced leadership in a couple of different areas that we believe are really going to make a difference as we go into the back half of the year.

You got to look at the market, wealth management fees. We have a significant part of our wealth management fees are earned every month on assets under management. So if we get a good stable market or an upward tilted market, then we're going to see some additional fee income growth. If we get some downward tilt to that market, it's going to put a little pressure on wealth management annuitized fee income.

Brett, this is Mike. The thing I would add to that and just call a little bit of attention to is while the guide is up 4% to 5%, safe to say that the guidance is really toward -- or the bias is really towards the upper end of that range. And if you look at our performance against guidance and fee income over the years, we do tend to overperform, I think, a little bit. So you could call that guidance a little bit on the conservative side. So it would not surprise us if we came in maybe even a little bit above that range, but certainly not prepared right now to change the guidance as of yet. That's something we'll address as we go through the year.

The other thing to call out is, I think we said this or called attention to it in the opening comments, is this notion of specialty income being somewhat difficult to predict and can be -- can vary a little bit quarter-to-quarter. And for us, specialty income is things like syndication fees, BOLI, some of the mortality gains there, derivative fees and SBIC income.

So for example, last quarter, we had a pretty sizable gain in FDIC fees, sorry. And obviously, that didn't repeat in the first quarter. But as we go through the year, would certainly expect SBIC fees to contribute to the overall growth. So that's just an example of something that can kind of create a little bit of volatility and unpredictability as we go through the year. So hopefully, that was helpful.

Yes. That was very helpful. And then maybe just housekeeping or maybe just a fundamental question around just the bond restructuring. One, just making sure that the guidance excludes or includes the bond restructuring for the full year? And then just thinking about the rationality going through, it's a little more than a 4-year payback, but it seems like things like that's where a lot of these things end up in terms of the payback. So I was just curious on your thought process. I know a lot of banks look at that quite every week to think about. So I just wanted to hear your thoughts on it.

Yes. So obviously, the bond restructure is part of the guidance for the full year and a bit of a driver. So we were thrilled to be able to execute that transaction in the middle of January. And certainly, as I mentioned before, I think on one of the earlier questions, it's a great use of capital. So it is something that we look at from time to time. We did one a couple of years ago that did admittedly have a little bit of a shorter payback period. And it's just a fact now that the bonds that populate our portfolio are such that executing a transaction like this does give you a little bit longer payback. But we still think it's a smart use of capital, and we're glad to have executed the transaction certainly.

And our next question comes from the line of Gary Tenner with D.A. Davidson.

I had a couple of questions. Mike, I was curious on the CD repricing or the CD [ roles ] as they renew. When we were going through the easing cycle initially, I know you are very focused on keeping those CD maturities pretty short, kind of 6-month focus so you could turn them pretty quick. Has that approach changed at all in terms of -- given the unknown, whether -- which direction rates might go at some point, in terms of what -- kind of how you're trying to ladder those CD maturities?

Yes. Great question, Gary. And it absolutely has. So what we're doing now or the way we're kind of modifying those tactics or strategy is to the extent we can begin to kind of lengthen out some of those CD maturities. So for example, the best rate we have right now in terms of our promotional rates on CDs is for 3.5% for 11 months. So the intent there, obviously, is to extend the duration of those a little bit going forward.

Great. Appreciate that. And then just to clarify your comment on expecting a similar pace of buyback. So you used about 1/3 of your authorization in the first quarter. Should -- is the kind of read on what you were saying that you might kind of use it all up earlier and then either just do nothing, let's say, in the fourth quarter? Or would the Board potentially approve an additional authorization ahead of when they usually do? Or is the remainder more ratable over the rest of the year?

Yes. So a great question, and I hate to say that kind of all of the above, kind of. So what I mean by that is if you look at the authority that we have in total for the year, that was about 4.1 million shares, and we did lean into the buyback pretty heavily this quarter. We saw an opportunity at some point during the quarter when the stock had pulled back a little bit, and again leaned in and bought the 1.4 million shares.

So the intent absolutely is to exhaust the buyback as we go through this year. Whether we do that early or whether we affect the buyback a little bit more on a pro rata basis for the remaining 3 quarters really remains to be seen. And I think more than anything else, we want to give ourselves some optionality and flexibility to react to what's going on in the market. So the catch-all caveat to that really is what's going on in the environment, our own valuation and then how much we're growing our own balance sheet. And again, the intent always is going to be to deploy capital to support organic balance sheet growth, and then leaning into buybacks and common dividend increases would come after that.

But -- so again, I think the -- the pertinent point is the intent to exhaust the authority as we go through the year. If we do exhaust it early, then that will be a decision that we make with our Board. Whether to re-up early, we'll wait to maybe re-up at the beginning of next year.

And our next question comes from the line of Jared Shaw with Barclays.

This is [ John Ron ] on for Jared. I ask first, maybe just thinking about conflict in the Middle East and higher oil prices. I know you're not a big direct energy lender, but just wondering how that dynamic impacts borrowers and sentiment in the market?

Well, we'll start with sentiment, and then we'll -- maybe Chris can mop up if there's any credit tone for the question. Shane, you want to begin?

Yes. We do a regular client survey a couple of times a year and really try to understand what's going on with clients, what are they thinking in terms of investments, those kind of things. At this point, I think the word is cautious. They are optimistic. I think that at this point, the Iran conflict or war has really kind of crept into energy cost.

But on top of energy costs, folks are looking at labor costs, insurance costs across the markets that we serve is kind of some of the guidepost of when they're going to invest and how much they're going to invest. I would say at this point, we don't have clients that are giving us very specific reasons of why they will or won't invest that are centered around the current war.

Chris?

I mean, I think that's spot on. I mean, it's probably early to tell. I'm sure if it persists for a long time, I mean, it will probably start to show up from a credit standpoint in various areas, especially those that don't have the ability to pass on some of those cost increases. Some have them built into their contracts if they have a contract in place. So it's probably easier to at least pass it on. But I think it's just too early to tell. It's certainly something that we're watching and we're mindful of. I think overall operating costs for companies and individuals have risen probably faster than their income has. So there's probably a little bit of a squeeze going on, but it hasn't really shown up dramatically at this stage.

Okay. Great. Helpful. And then just thinking about attracting new commercial customers and maintaining a competitive product set, are there any capabilities in like treasury management or payments or anything that customers are asking for that has led any thought around further like investments in that platform?

Yes. Thank you. This is Shane. Look, we aspire to be the best bank for privately owned businesses and business owners in the country, and we feel like we're on that path. And that really ties back to certainty of execution and quick credit decisions, great treasury and deposit products and then a sophisticated wealth management capability.

So when it comes to treasury, we are continually updating our systems, continuing to interface with more third parties such that clients that are using accounting systems and other types of systems to manage their business that ties directly into our treasury products. We're continually investing in card products. We feel like we've got one of the best purchasing card programs in the country. And on top of that, we are working on real-time payments and new payment capabilities that will help facilitate and hopefully reduce cost and complexity for clients.

Okay. Perfect. That's helpful. And then sorry, just one last one for me. Could you -- do you have the total revenue producer number at the bank today? Just help get some context around the new hires.

The revenue producers, let's call it, north of 200.

This is John. I think the number you're fishing for is a quarter or 2 ago, we suggested that we were going to raise the expectation for compounded annual revenue producers to go maybe towards 15% annualized versus the 10% we talked about a year ago. And the first quarter success with landing bankers certainly supports that thought process. Is that what you're looking for?

Yes. Yes, exactly.

And that concludes our question-and-answer session. I will now turn the conference back over to Mr. John Hairston for closing remarks.

Thanks, Abby, for moderating the call. Everything went well. Thanks, everyone, for your interest, and we look forward to seeing you on the road very soon. Have a great afternoon.

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

[Audio Gap] NIM by 7 basis points and EPS will improve $0.23 per share. Mike will give more details on the restructuring in his remarks. We provided guidance on Page 22 for what we believe will be a very successful new year. This guidance reflects our organic growth benefits as well as impact from the bond portfolio restructuring. Now for a few notes on the fourth quarter.

We had another quarter of very solid earnings with an ROA of 1.41% and an efficiency ratio under 55%. Fee income growth again continued this quarter and expenses remained well managed, including thoughtful investments supporting revenue-generating activities. Net interest income continued to grow as we reduce the cost of funds and enjoyed higher security yields. NIM was relatively flat, down 1 basis point from prior quarter as the decline in loan yield outpaced our higher yield on securities and lower cost of funds.

Loans grew $362 million or 6% annualized. As shown on Slide 11 of the investor deck, our production was quite strong. Our increase in production this quarter more than offset an increase in prepayments, which produced a net growth of mid-single digits. With the investments we're making into new revenue producers, we expect this trend to continue and loan growth in '26 will be mid-single digits compared to the previous year-end. Deposits were up $620 million or 9% annualized, largely driven by seasonal activity in public fund DDA and interest-bearing accounts, which increased $417 million.

As a reminder, we usually experience seasonal public fund outflows in the first quarter of each year. Our interest-bearing transaction balances were up $223 million, with higher balances driven by competitive products and pricing. Retail time deposits decreased $90 million due to maturities during the quarter, and DDA balances were up $70 million, inclusive of a $191 million increase in public fund DDAs. DDA mix ended the quarter at a strong 35%. We expect our investments in financial centers and revenue producers will support our guidance for deposits, which we anticipate will increase low single digits from 2025 levels. As previously announced, we fully exhausted our share buyback authority last quarter, which impacted capital ratios. Despite his repurchase volume, we ended the quarter with TCE a little over 10% and and a common equity Tier 1 ratio of 13.6%.

Our Board approved a new 5% buyback plan that will be effective through the end of '26. We are very optimistic as we look forward to the coming year. Our work over the past several years has resulted in solid capital levels, a robust allowance for credit losses, superior profitability, ample liquidity, benign asset quality and now positive trends in balance sheet growth. We are excited for the opportunities in the coming year and believe we are positioned well for a successful and growing 2026.

Lastly, I would like to introduce you all to President of Hancock Whitney and Chief Operating Officer, Shane Loper. He will be joining us on our earnings calls going forward. With that, I'll invite Mike to add additional comments.

Thanks, John. Good afternoon, everyone. Fourth quarter's earnings were $126 million or $1.49 per share. compared to $127 million or again $1.49 per share in the third quarter. PPNR for the company was down slightly from the prior quarter to $174 million. expressed as a return on average assets, that continues to be a solid 1.96%. NII increased 1% this quarter driven by favorable volume and mix for both average earning assets and interest-bearing liabilities, partly offset by a slightly lower NIM, which decreased or narrowed 1 basis point this quarter.

As John mentioned, our fee income business had a solid quarter and expenses were up due to continued investments in revenue-generating activities. Our efficiency ratio was 54.9% for the quarter and 54.8 for the year. That was down 58 basis points from [ 2024's ] 55.4%., reflecting our net interest income growth, strong fee income performance and well-controlled expenses. Fee income grew in each of the 4 quarters this year totaling $107 million in the fourth quarter. We enjoyed solid performance across each category with the increase this quarter driven by higher specialty income.

We expect fee income will be up between 4% and 5% in 2026 with a continued focus on core deposit account growth that often delivers multiple categories of fees. As mentioned, expenses remain well controlled, up only 2% from the prior quarter. Much of this increase was from investments that we believe will enhance our revenue-generating capabilities in 2026. We expect expenses will be up between 5% and 6% and including an impact of about 185 basis points from the execution of our organic growth plan and a full year of expenses related to our acquisition of Sabal Trust Company.

Expense growth year-over-year was well controlled at only 3.6%, inclusive of ample reinvestments. The 1 basis point contraction in our NIM was driven by lower loan yields on both new fixed and variable rate loans and existing variable rate loans following the 2 rate cuts this quarter. Partially offsetting this was higher bond yields lower cost of deposits and a favorable mix and rates for other borrowings. Our overall cost of funds was down 7 basis points to 1.52% due to a lower cost of deposits and better funding rates and mix as we ended the quarter with lower FHLB advances.

Our cost of deposits was down 7 basis points to 1.57% for the quarter with the cost of deposits down to 1.53% in the month of December. Following the rate cuts in October and December, we reduced promotional rate pricing on our interest-bearing transaction accounts and retail CDs. In 2026, we expect CDs will continue to mature and renew at lower rates, which will support improvement in our cost of deposits. The yield on the bond portfolio was up 6 basis points to 2.98% due to cash flows of $213 million, rolling off at 3.55% and and reinvestment in $290 million of bonds had a yield of 4.45%.

In addition, we had a $0 loss bond swap of $230 million with a yield pickup of 45 basis points. As John mentioned, we completed a bond portfolio restructuring in the first 2 weeks of January 2026. We sold $1.5 million of bonds at a yield of 2.49% and reinvested the proceeds in bonds carrying a yield of 4.35%. We're expecting the annual impact will support our and NIM growth in 2026 and will contribute 7 basis points to our NIM, $24 million to NII and about $0.23 to earnings per share.

Our forward guidance for 2026, is on Slide 22 of the earnings deck and includes the expected impact of the bond portfolio restructuring, but excluding the pretax charge of $99 million. We are assuming 225 basis point rate cuts in April and July of 2026. We expect NII will be up between 5% and 6% from 2025 with modest NIM expansion and our PPNR guide is to be up between 4.5% and 5.5%.

Our efficiency ratio is expected to fall in the range of 54% and 55% in 2026. For the fourth consecutive quarter, our criticized commercial loans improved, decreasing $14 million to $535 million. Nonaccrual loans decreased $7 million to $107 million. Net charge-offs came in at 22 basis points. Our loan loss reserves are solid at 1.43% of loans. We expect net charge-offs to average loans will come in at between 15 and 25 basis points for the full year 2026.

Lastly, a comment on capital. Our capital ratios remained remarkably strong even with the full exhaustion of our share repurchase plan, where we bought back about $147 million of shares in the fourth quarter of 2025. Our Board reauthorized a new 5% repurchase plan in 2026, and we expect share repurchases will occur at a more even pace across 2026. Changes in the growth dynamics of our balance sheet, economic conditions and share valuation could impact that view.

I will now turn the call back to John.

Thanks, Mike. Let's open the call for questions.

[Operator Instructions] The first question is from Michael Rose, Raymond James.

Noticed that the fourth quarter loan production was up about 7.5% Q-on-Q, but paydowns were also up. Maybe Mike or John, if you can just talk about what your expectations are for kind of gross production versus expected pay downs as we move through the year inclusive of those 2 cuts.

I'm going to ask Shane to start with that [indiscernible]

And really, what I'll do is I'll try to cover just kind of where the production came from and then tie out with what we see into the future. First, I'd just like to say thanks to the entire team for delivering a good year of operating results and just thanks for that contribution to success. I think it's important to note that loan production increased for the third consecutive quarter with nearly $1.3 billion of production in the fourth quarter. Typically, we'll see 35% of all that production funded and then grow to around about 40%. In the fourth quarter, the team produced an additional $260 million in production over the third quarter, which contributed pretty significantly to that 6% growth that we're talking about. Geographically, the banking teams delivered growth across all of our core markets in Texas, Louisiana and Florida. And this is also important because as we intentionally improve our commercial and middle market segment mix, that's going to deliver higher spread relationships that may offset some of the thinner spreads in the specialty segments. Commercial real estate continues to deliver consistent production, which will find up once that initial equity burns off in those deals. And we expect to experienced sustained fundings that really have occurred with production over the last 18 to 24 months throughout the year in 2026. With expected and planned paydowns as a headwind to CRE growth. And I don't think that's anything new that we're talking about there. A lot of those paydowns will get to lease-up CO and go maybe to the permanent market. CRE production for 2026 looks to continue to be steady. As the 2025 production funds up. Looking at health care, that team continues to deliver growth with current and new banker ads. The production delivers good NII, but that's one of those slightly thinner spreads than the commercial and middle market segments and I expect health care to continue to deliver as we've shifted our focus more to health care real estate and a selective focus on senior care sponsor operators. Commercial Finance, which is our equipment finance and ABL teams, they also continue to deliver strong production and balanced growth. We're experiencing good deal flow there. So that we can screen credit and are considering and executing on capital in those companies that are considering and executing on capital investments. As I said about health care, these balances produce positive NII but are at a little bit lower spread. We saw some consumer loan growth for 1 of the first times, and it grew about $5 million in the quarter, led by ELO production. Fourth quarter '25 was our first [indiscernible] growth quarter in '25, about $15 million and a 3-year high of applications in the quarter. So we believe HELOCs will continue to be a solid consumer product into '26, and we get about 40% line utilization there. And finally, kind of wrapping up on growth, I'd like to call out our business banking team. they produced a strong $36 million in growth this quarter at our highest spreads. We recently recruited an accomplished executive from the super regional bank to lead our business banking segment. and have high expectations of that team concerning loan and deposit growth throughout 2026. Our goal is to be the best bank for privately owned businesses in the country, and we're committed to delivering on that. aspirational goal with credit execution, market-leading deposit products and sophisticated wealth management for both businesses and business owners. So if I look forward to 2026, I believe our team is calling on the right clients and prospects to deliver on a better segment mix. and deliver on our mid-single-digit growth guidance. So kind of wrapping up when you look at paydowns, I think we can expect paydowns in CRE I think we can still expect some entrant of private credit and other lending opportunities like that with some of our clients. But right now, we feel like we've got a fairly stable base to work from, and it's all about generating business going forward. Michael, any follow-up?

It's a very detailed response. So I appreciate all the color. Maybe just as my follow-up question. So it looks like the ROA target has been moved a little bit higher from last year, but the TCE ratio is also higher. Can you just walk us through some of the other assumptions that kind of underlie meeting some of those targets that your CSOs. I know you have the Fed funds rate at 3.25%, but would just love some other colors around kind of the base case expectations.

Sure, Michael. This is Mike. I can add some color to that and a few comments. I think the biggest thing is this notion of consistent balance sheet growth, organic balance sheet growth over the next 3 years. our guidance for loans has stepped up this year to mid-single digits from what we achieved last year, which was akin to more low single digits. So kind of continuing this notion of consistent balance sheet growth over the next couple of years is really important. You called out the rate environment. We're assuming just to keep the assumptions straightforward, Fed funds at 3.25%, which is where we expect Fed funds to hand at the end of this year. we'll continue to reinvest back in the company. So I would expect expense growth to be something on par with what we're guiding for this year, which if you kind of strip away the investments that we're kind of calling out in the guidance and the annualized impact of Sable is still a pretty reasonable run rate of somewhere around 3.5% to 4%. So that kind of continuing for the next couple of years. And then look, we've been tremendously successful in terms of kind of upscaling our fee income businesses. The guidance for next year is in the 4% to 5% range. so to kind of continue that going forward is equally important. We'll grow the deposit side of the balance sheet somewhere over the next couple of years, I think, in low to mid-single digits and the NIM expansion will follow along with NII growth. So those are the main things. Now in terms of the TCE guide of 9% to 9.5% we're well north of that now at just over 10%. You can assume that will continue buybacks at the levels we've done both in '25 and again, what we're guiding for 26. So I think the combination of continuing a pretty robust buyback program along with addressing the dividend inorganically growing the balance sheet should help us get our TCE down to those levels. So those are kind of the main assumptions.

Michael, this is John. I'll add very little to it. But I think if we kind of step back to or step up to 60,000 feet and you take what Mike and Shane to share. The ROA guidance being a little bit steeper than where we are today, doesn't seem like a tall task, if we weren't reinvesting back in future years revenue like we are today and what we guided to. But our goal is not to just become a very -- or be a very high profitability organization. It's also to deliver on pretty reliable balance sheet growth year in and year out. So investors see PPNR continue to grow, but still maintain a pretty profitable book. And that's a hattrick to pull all that off at the same time. And just for a bonus maintain excellent to very solid credit quality. So if we slowed the expense growth down some through reinvesting less than our profitability guide would have been higher, but our goal is to add bankers and add offices, perhaps the latter part of the year next year and continue growing a bigger balance sheet and higher growth markets so that on an overall basis, investors are going to see that value build over time. So I hope that helps you kind of bring all those pieces together.

The next question comes from Catherine Mealor from KBW.

A question just on the margin. You've talked about seeing modest NIM expansion in '26, but we're getting 7 basis points immediately upfront from the bond restructure. Do you kind of walk us through kind of what you're thinking about the margin kind of outside of that onetime event? Is it -- do you kind of still see a core margin having upside? Or is it -- or is really that modest expansion coming from the bond restructuring outside of that were kind of stable once we hit that new rate.

Sure, I'd be glad to, Catherine. So I think the main underpinning of what we're referring to in terms of our ability to widen the margin grow NII next year is really around the balance sheet. So we've got the the loan growth pegged at mid-single digits. So if you assume that's somewhere between 4% and 5%, that should add a healthy amount of volume to our balance sheet. And certainly coming with that will be an intended increase of average earning assets. So I think first and foremost, it's organically expanding the balance sheet. Then you called out the bond portfolio restructure. So that will contribute 32 basis points in terms of the bond yield about 7 basis points on the NIM. But related to the bond portfolio, we also have about $1.15 billion of cash flow, principal cash flow coming back to us next year, that will be coming back at about $375 and going back on the balance sheet, call it between 4.25% and 4.5% depending on where rates are. So that's a significant improvement on top of 32 basis points related to the bond restructure. So that could be as much as somewhere between 45 and 50 basis points of bond yield improvement from the fourth quarter of '25 to the fourth quarter of '26. So that's significant. Then in terms of our cost of deposits, we're assuming the 2 rate cuts next year, 1 in April and 1 in July. So given that we've got anywhere from about 25 to 30 basis points improvement in our cost of deposits from fourth quarter to fourth quarter, a lot of that's coming from our continued ability to reprice seating maturities we've got about $8 billion of CD maturities next year. Those have come off at about 334. The assumption is that they'll go back on at about $2.80 or so. That is inclusive of about an 81% renewal rate. So the organic growth of the balance sheet, the securities yield improvement, our ability to continue to reduce our cost of deposits. Those are the main tailwinds, if you will, towards NIM improvement next year. Probably 1 of the headwinds would be we do expect with a couple of rate cuts next year, our loan yield will continue to decline a bit next year, I think, at a slower pace than what you saw over the course of the fourth quarter. I think you put all that together and our NIM improvement call it somewhere between 12 and 15 basis points, maybe a little bit north of that, again with 7 coming from the bond restructure. So that's how we're kind of thinking about the NIM and NII next year.

By next year, you mean '26?

'26. Yes, I'm sorry. This is the fourth quarter.

That was really helpful, Mike. And maybe just as a follow-up, back to the revenue producer hiring plans that you have. You've hired think you said 22 new bankers, third quarter '24 through fourth quarter '25 to call, over the past year, who we're now going to do 50 in '26. So we're doubling the amount of bankers that we're hiring. I know part of -- you kind of gained momentum in that plan, I know throughout the course of the year. But maybe just walk us through kind of what gives you confidence and be able to hire that many more bankers this upcoming year versus last year? And maybe kind of the pace that we should expect that to come on board as we move through the year?

Sure, Catherine. This is Shane. Thanks for that. So we're confident in it. However, hiring is competitive as every bank is looking to hire from a limited pool of bankers. And the reason we're confident is we've significantly enhanced our banker hiring discipline to really look just like our client acquisition process. Our goals are to hire probably a split of 60% business bankers, 40% commercial bankers of that up to 50 in '26. And those folks really are targeted to intentionally generate a better portfolio mix, a little more granular business. The enhanced recruiting process is yielding expected results. We're out of the gate strong in the first quarter. We began this early fourth quarter and it's a process that is really pretty tight in terms of ongoing meetings pipeline review of potential hires and where they are and what their skill sets are. And we're following up on that on a very regular basis. So I think the the strength of that process has been greatly enhanced. And as I've said before and we've said before, this organic hiring plan is designed to be like a flywheel with bankers hired in previous years and quarters ramping up production as those current year bankers are oriented to our sales and credit processes. So we're getting the production from those folks that the 22 that we've hired last year as we're hiring up to the 50 this year. And really, to date, the bankers hired or performing as expected and contributing to our growth, and we monitor that performance on an ongoing basis to ensure that we're getting what we expect -- we're also going to continue to be opportunistic in hiring bankers in our specialty segments. So CRE, health care, equipment finance and ABL. So at this point, given the enhanced processes and the work that's going on, the pipeline, if you will, of potential candidates to bring into the company is good. I feel very good about getting that up to 50 in '26.

We will take a question from Casey Haire from Autonomous Research.

So I wanted to touch on fees. The fee guide, I know 4% to 5% seems like a lot, but it's -- you didn't have Sable, which closed in the middle of the year. And it just does -- it feels a little conservative because if I run rate this fourth quarter here, you're already at that $425 million level. So I'm just wondering if there's -- if we're missing something or if it's just a little conservative.

This is Shane. I'll take that one, too. So fee income across all of our banking segments and products, as you just articulated, continues to deliver in the fourth quarter. We've grown consumer DDAs in the fourth quarter and throughout the year. That's contributing to service charges, which will contribute even more as a full year of those accounts are on the books. Mobile openings have increased by 20% year-over-year as well as 80% of our new checking accounts are digitally active. So that really makes them very sticky in kind of primary accounts. business service charges continue to perform, and it's -- those are reflective of the book that we have in our strong treasury service products and services. And as we improve our overall execution in business banking, as I mentioned before, I would expect those deposits and deposit fees to follow along that improvement curve. Card fees right now are generally holding flattish in a trajectory quarter-over-quarter. But I think there's an opportunity there to grow in 2026 through our purchasing card and business card growth. Merchant is another area where we have solid opportunity to grow as that business banking execution improves and our product bundling strategy gains momentum there. mortgage fees, again, continue to perform, and we're ready for anything that may happen in the mortgage market with our direct-to-consumer digital offering that we have there. You mentioned the Sable trust fees. The wealth management continues to contribute in their strong execution with the Sable team to retain clients and grow the base there. annuity sales are a little softer in the fourth quarter, but have remained historically strong for us with our managed money contributing recurring fees at about $15.6 billion of AUM. So given those things and our focus on growing core deposit accounts, continuing to deepen wealth management, I think the fee income target of 4% to 5% is solid, and we should be able to end that bar.

So Casey, this is Mike. One item just for consideration. Certainly, the 4.5% or 4% to 5% might look a little anemic compared to what we were able to do this year, '25. But certainly, you have the impact of Sable year-over-year, which kind of distorted the '25 numbers a bit. And certainly '25 was an absolutely outstanding year for something like annuity fees, which is just hard to imagine that that's going to repeat at that same level in -- the other reminder, I think, is we have a pretty healthy specialty -- series of specialty lines of business and our fee income book. Those things are very unpredictable quarter-to-quarter and even year-to-year things like BOLI, SBA fees, derivatives, very dependent upon the rate environment, syndication fees, SBIC fees. So if you dig into the quarter, one of the things that really drove the quarter, the fourth quarter was we had a really healthy quarter in terms of SBIC fees, which again, is one of those things that's really hard to predict and really hard to count on year-to-year. So I think overall, we feel pretty good about the 4% to 5%. And certainly, we'll look at it join at necessarily as we go through the year.

All right. Great. That's super detailed. And then I just want to finish up on on the M&A question. You guys are doing all the right things and upping the buyback this quarter and pulling up your TCE ratio and clearly making a lot of hires and committed to the organic strategy. But when you talk to investors, there's -- for whatever reason, there's just a lot of concern that you guys are still in the M&A market and open to a deal even though you're saying you not focused on it. So I guess just what would you say to that concern regarding M&A appetite?

Well, I think the most important thing for us to say is really consistency with what we've been saying the last couple of quarters, which is really what you just kind of repeated in terms of not something we're particularly focused on. And I think the best way to describe our stance is really opportunistic. And I don't know what else to say about it other than to describe it that way. again, as we've mentioned before, we're aware of the things that are going on around us. We're not sticking our head in the sand. So we pay attention to those things and talk to folks just as an effort to get to know folks and let them it to know us. But at the end of the day, opportunistic is really, I think, the best way we can describe how we look at that. Hopefully, it helps.

I just -- when you say opportunistic, the an opportunity above a 3-year earn back. Is that something that's not an opportunity for Hancock? Or is that something you guys would consider?

I mean, look, in today's world, I think that the threshold of not exceeding a 3-year earn-back is something that if we were to go that route, we would not cross that line. But look, that comment does not mean we're doing anything .

Other than just approaching this from an opportunistic point of view. It doesn't mean we have something out there ready to reveal.

The next question comes from Brett Rabatin from Hovde Group.

I wanted to start on the purchases of securities during the quarter and the $1.4 billion at $435 million. Can you talk maybe about what kind of securities those were? And then will that change the effective duration of 3.9 that you had at the end of the year?

It will not, first off, Brett. And then in terms of the securities that we bought and sold in the bond restructure that we announced, those were almost entirely commercial mortgage-backed securities. The vast majority of the bonds that we sold, as you can imagine, were bought kind of in the 2020 and 2021 vintage some in 2019. but most exclusively commercial mortgage-backed securities. In terms of the no loss bond swap that we did during the quarter, that was also entirely commercial mortgage-backed securities. In terms of the bonds that we bought during the quarter, it was a variety of commercial mortgage bank, some residential, some SBA.

Okay. So you effectively didn't change the duration of the portfolio. It was more just an opportunity you felt like with capital to improve the yield.

Yes. Certainly, we have the capital to invest in something like this. So we decided to pull the trigger on the $100 million. It felt like the right time, the markets at the time were behaving. I'm sure glad we did that. when we did it instead of commencing that in the current environment. So we're very fortunate in terms of that timing. But yes, I think so. It was just an opportunity to to enhance our NII, enhance our NIM and improve the yield on our bond portfolio.

Okay. And then the other question I had was just around deposits. And obviously, solid flows in the fourth quarter, some of that somewhat seasonal. If you look at last year, deposits didn't grow, they were down slightly. And it sounds like from the comments you've made so far, you're expecting to price down CDs and be fairly aggressive with managing funding costs in '26. I'm just curious how you guys think you're going to grow the deposits. Is the -- will there be categories where you're more aggressive? Is there anything in particular, that would drive deposit growth relative to what we saw last year?

Well, I'll start just real briefly. But again, the guidance for next year for '26 related to deposits is low single digits. That means 1% to 3%, I guess. Look, in terms of how we get that, I'll let Shane answer that question, but I think it has all to do with the new hires that we're planning into next year.

Brett, it has some to do with new hires. It has to do with our business banking segment, really gaining traction in '26. We believe that quick credit execution there brings a multiple of those credit balances and deposits. You heard me talk a lot about the growth that we're experiencing in our geographies. That's core business in new relationships as we bring new bankers on and are calling on different types of clients that bring enhanced deposits. So we are adding -- we talked about investments. We're adding new capabilities in terms of treasury services, which will also be attractive to clients to bring additional deposits to us. So I think it's a combination of new bankers, good calling efforts in our core markets and additional investments that will be attractive to clients to bring additional deposits to us.

[ Ben ] Gerlinger from Citi has the next question.

I just wanted to -- I know we talked through the hires quite a bit in the notable step-up on '26 expectations. I was kind of curious, do you have any sort of mandate banks kind of size the bottom line, do they expect to have a loan within a not a time frame or profitable in a certain time frame? Because I think [indiscernible] is great for '26, but in reality, is it fair to think that, that [indiscernible] stronger '27 and '28 for growth expectations.

I was going to say, Ben, your question is about like time to breakeven time to get the target operating model, is that the question?

Yes.

Yes, Ben, this is Shane. All new bankers, whether they're business banking, commercial or middle market, we measure their effectiveness by risk-adjusted revenue. And we look at that from a total managed and self-originated perspective. And I think it's been said on previous calls, typically, we'll see kind of median breakeven at that '24 to '26 months range. So when you look at new bankers hired last year, A lot of those folks are approaching halfway through where their breakeven point is. And then this year of that $50 million I would think by the end of '27, they would be producing very well on a risk-adjusted revenue basis. And we measure that typically in multiples of the cost of that banker.

Got you. That's helpful. Is there any kind of mandate on the legacy core team you have today or new bankers being added on the 1 adverse specifically given the new kind of rate environment? Or how do you think about both sides of the balance sheet when you hire [indiscernible]

Questions around kind of our expectations on deposits versus loans?

Correct.

I have a little trouble hearing you. I'm sorry to ask you to repeat. Do you want to tackle that one, Shane, deposit expectations versus loans.

Yes. I think it's -- for all of these bankers, we're expecting a blended portfolio. We're not interested in bringing on bankers that are just going to generate loan balances. I mean that's great. but we need the full relationship because with the full relationship, when I talk about that risk-adjusted revenue, you get the credit for the deposits, you get the additional fee income that comes through treasury and card and other activities like that. So when you think about how we are asking our folks to go to market. It's obviously you're going to have to have a credit relationship at some point maybe to get into a new relationship, but we are expecting a full service to include treasury card and all the other fee products to include our sophisticated wealth management products for those business owners that I spoke about. Ben, this is John. I'll add some color, which I think may be helpful [indiscernible] what you're looking for. The we've invested a tremendous amount of money and time over the last decade with tools that help our bankers understand what the implications are of their own portfolio balance sheet. So for example, if in a specialty line, it generates credit, but really doesn't have the capacity to generate deposits, their portfolio under their view, is transfer priced on the lending side, risk adjusted for credit, credit degradation or improvement. So they really sort of are the balance sheet manager for their portfolio. and their conversations with leadership around their goals look almost like an overall corporate balance sheet discussion in our ALCO meeting. It's a very sophisticated model that took us a long time to put together. And that really was the secret sauce to the improvement. We had an overall cost of funds while pivoting to loan growth the last year and what we're expecting '26. So it's a very balanced assessment. So I wouldn't call it as much a mandate as it is an overall risk-adjusted revenue target for the year and based on their tenure with the company, if that's a building revenue set over time than the core folks really have to produce liquidity to keep up the funding requirement for the new folks that they're credit focused. But ultimately, their time to generate fee and deposit income will have to continue. So when we say risk-adjusted revenue, that's literally as Shane said, that's deposits, fees and loans, offset by the risk. Does that make sense?

We'll take the next question today from Gary Tenner from D.A. Davison.

I have 2 quick follow-up questions. I guess the first, Mike, on your comment about NIM improvement, that 12 to 15 basis points you mentioned. Just wanted to clarify to me that sounded more like a 4Q to 4Q number, not necessarily -- not full year over full year. Is that a [indiscernible] to think about it?

Yes, that's exactly right. Fourth quarter of '25 million, the fourth quarter of '26.

Okay. And then second, just in terms of the buyback, so I don't want to put words in your mouth, but based on what you're talking about being on a more level basis over the course of the year, subject to maybe leaning in, if there were to be some kind of sell off. It doesn't sound like there maybe is a great deal of price sensitivity at this point. It's more about working down the capital ratios a little bit. Is that also fair?

Well, I think it's fair to say that we're cognizant of the price sensitivity. So that's something we'll certainly consider as we execute that program over the year. The comp was really meant that you will not see a big aggregation or will be unlikely to see a big aggregation of buybacks in 1 quarter like we did in '25. I think it will be all things equal a little bit more spread evenly across the year. may not be literally evenly close it.

Next, we'll take a question from Christopher Marinac from Janney Montgomery Scott.

I just want to dig a little bit into credit quality. And just was curious if there's anything on the commercial charge-offs in Q4 that would sort of be more just temporary from year-end cleanup? Or would you see perhaps a slightly higher trend going into '26?

Thanks, Chris, for the question. We'll wake up [indiscernible]

Yes, thanks for the question. I appreciate it. Yes. So from a credit quality perspective, actually, we really are quite pleased with what we see as kind of a very resilient portfolio. Over the past, really, a couple of years, we've fine-tuned our underwriting portfolio management processes. So we feel that, that's helping us kind of navigate any sort of specific issues. As you can see, with both nonaccruals and criticized going down in the quarter, we saw a lot less inflows in general this quarter, which kind of helped with that situation. And then on the charge-off side of things, if I look at, for instance, like the top 4 charge-offs in the quarter, they're really in many different industries. There's not a single industry in there that is similar to the other. So they really are very situationally specific. And in many instances, we had some reserves in place -- some specific reserves in place on those matters that were already in our criticized and nonaccrual book. And so that's one of the reasons why you see -- if you go into the more details specific reserves actually did come down a little bit this quarter because we made a decision to charge those off.

Great. So I guess the question, I think, is there room for you to let the reserve kind of run down over this next year. I mean, you're still having low losses relative to 3 or 3.5 year maturity for the whole book. I'm just curious if you've got covered kind of gradually lower that over time.

Yes, Chris, this is Mike. I mean, admittedly, we're fairly high where we are at 143 basis points. So I think the short answer is, yes, there's probably a little bit of an opportunity, but we're very cognizant of not letting that ratio get too low. So I don't know that you would see us below 125 or 130 basis points. And again, by making that comment doesn't mean that we're trying to get to that level. It just means all things are equal. I don't think we would go below that threshold.

Great. And then as this year plays out, depending on how many we do or don't get in terms of Fed rate cuts, how does that impact just kind of risk-adjusted pricing as you think about it? I know the nominal returns are coming down or nominal yields are coming down, but is the risk adjusted, do you think going to be stable? Or maybe that's more internal than you shared with us, but just curious how you think about it.

Yes. I don't think it would be at least stable compared to where we are now, even with a couple of rate cuts. Again, from Shane's comments, and I'll let him add some color if he'd like to. But we're very deliberate in terms of the kind of new loan growth where we're trying to add to the balance sheet very deliberate in terms of the credit quality that we consider. So the risk-adjusted spreads should not all things equal, compressed considerably.

Yes. I think we can get better at our pricing and overall deal execution to improve the overall loan yield. And I know you're asking about risk-adjusted spread. But I think the better we can execute, the better we can price. And one of our strategic initiatives for 2026 is to calibrate how we actually price and our pricing models to win business and to put some positive pressure on loan yields. And that calibration is going to require intentional focus given potential rate reductions, competition for new deals and pressure on current clients. So I feel like we have an opportunity to put that positive pressure in and Emry Mayfield, who's our new Chief Banking Officer, will be leading that strategic initiative as we go into the year.

[Operator Instructions] And everyone, at this time, there are no further questions. I'll hand the conference back to Mr. John Hairston for any additional or closing remarks.

Thanks, Lisa, for moderating the call. Thanks, everyone, for your attention. Have a wonderful new year, and we look forward to seeing you on the road.

Once again, this does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.

Good day, ladies and gentlemen, and welcome to Hancock Whitney Corporation's Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Kathryn Mistich, Investor Relations Manager. You may begin.

Thank you, and good afternoon. During today's call, we may make forward-looking statements. We would like to remind everyone to carefully review the safe harbor language that was published with the earnings release and presentation and in the company's most recent 10-K and 10-Q, including the risks and uncertainties identified therein. You should keep in mind that any forward-looking statements made by Hancock Whitney speak only as of the date on which they were made. As everyone understands, the current economic environment is rapidly evolving and changing. Hancock Whitney's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic developments is inherently limited. We believe that the expectations reflected or implied by any forward-looking statements are based on reasonable assumptions but are not guarantees of performance or results and our actual results and performance could differ materially from those set forth in our forward-looking statements.

Hancock Whitney undertakes no obligation to update or revise any forward-looking statements and you are cautioned not to place undue reliance on such forward-looking statements. Some of the remarks contain non-GAAP financial measures. You can find reconciliations to the most comparable GAAP measures in our earnings release and financial tables. The presentation slides included in our 8-K are also posted with the conference call webcast link on the Investor Relations website.

We will reference some of these slides in today's call. Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; and Chris Ziluca, Chief Credit Officer. I will now turn the call over to John Hairston.

Good afternoon, and thank you all for joining us today. The third quarter of 2025 was a remarkably strong quarter with an ROA of 1.46% versus 1.32% a year ago. Our results reflect continued profitability improvement, production in our efficiency ratio and progress on our organic growth plan. Net interest income continued to expand as our average earning assets grew at higher yields and we continue to reduce deposit costs down 1 basis point this quarter. For the third quarter in a row, fee income grew totaling $106 million, an increase of 8% from prior quarter. Investment, insurance and annuity fees lead this increase, hitting a record high for the organization. Expenses remain well controlled.

Compared to prior quarter's adjusted noninterest expense, we were up less than $3 million or 1% from prior quarter. Much of this increase was in personnel expenses due to our investment in revenue producers, along with higher incentive income from a strong quarter of loan production and really terrific fee income. Loans grew $135 million or 2% annualized.

As shown on Slide 27 of our investor deck, our production was quite strong, increasing 6% quarter-over-quarter and 46% from the same quarter last year. The net growth number was impacted by higher payoffs of larger credits, including SNCs, which were down $114 million and ended the quarter at 8.9% of total loans. We likewise encountered a larger-than-expected reduction in line utilization among industrial contractors as favorable project completion dates led to earlier payments on very large projects.

We remain focused on more granular full relationship loans with the goal of achieving more favorable loan yields and relationship revenue. We expect low single-digit growth in 2025 and perhaps low single-digit net growth for the fourth quarter as paydowns persist.

Deposits were down $387 million, largely driven by seasonal activity in public fund DDA and interest-bearing accounts, which decreased $269 million. Our interest-bearing transaction balances were up in retail time deposits and DDA balances down, reflecting promotional pricing changes inside the quarter. DDA mix ended the quarter at a strong 36%. Earnings contributed to growth in all of our capital ratios, while we continue to return capital to investors by repurchasing 662,000 shares of common stock. We ended the quarter with TCE of 10.01% and common equity Tier 1 ratio of 14.08%. This quarter, we continued to make progress on our organic growth plan. We've hired 20 net new bankers from the same quarter last year, a 9% run rate. We're well underway in our plan to open 5 new locations in the Dallas market. These branches will open either in late 2025 or early 2026.

While too early in the year for 2026 guidance, we do anticipate an increase in the pace of hiring to solidify our target compounded annual balance sheet growth rate. We remain optimistic about closing out 2025 with continued growth and profitability. As we look back over the past several years, we hope investors are pleased to see the combination of a fortress capital stack, solid allowance for credit losses, superior profitability, ample liquidity, benign asset quality and a new emerging trend of balance sheet growth. Despite the current somewhat dynamic macroeconomic environment, we are confident in the company's ability to navigate any challenges before us, support our clients and continue running a very successful playbook.

With that, I'll invite Mike to add additional comments.

Thanks, John, and good afternoon. As John mentioned, we're very pleased with the company's strong performance this quarter. Our adjusted net income for the quarter was nearly $128 million or $1.49 per share compared to adjusted net income of $118 million or $1.37 per share in the second quarter. Second quarter results included $6 million of supplemental disclosure items related to our acquisition of Sabal Trust Company. PPNR for the company was up $8 million or 5% from the prior quarter. Our NIM was stable at 3.49% and NII was up $3 million or 1%. Fee income was up $7 million or 8% from the prior quarter and expenses remain well controlled up just $3 million or 1% from the prior quarter's adjusted expense. Our efficiency ratio continued to improve, reaching 54.1% this quarter compared to 54.91% last quarter. Our efficiency ratio year-to-date of 54.73% is nearly 100 basis points lower than last year's 55.67%. The quarter at stable NIM was driven by a better earning asset mix, higher average loans and a higher securities yield, which was offset partially by higher other borrowings, volumes and rates as shown on Slide 15 of our investor deck.

The yield on the bond portfolio was up 6 basis points to 2.92%. We had $135 million of principal cash flow at 3.08%, and we reinvested $200 million back into the bond portfolio at 4.61%. Next quarter, we expect about $207 million of principal cash flow at 3.53% that will be reinvested at higher yields. We expect the portfolio yield should increase with continued reinvestment at higher rates for the remainder of 2025. Our loan yield for the quarter was up 1 basis point to 5.87%. Yields on fixed rate loans were up 7 basis points to 5.24% while the yield on variable rate loans was down 6 basis points. The yield on new loans was flat at 6.78%. With 2 rate cuts expected in the fourth quarter of '25, we expect the overall loan yield will be down accordingly.

Our overall cost of funds was up 2 basis points to 1.59% due to higher average other borrowing volumes and rates, partially offset by lower deposit costs. The downward trend in our cost of deposits continued, albeit at a slower pace, with a decrease of 1 basis point to 1.64% in the third quarter. The drivers were CD maturities and renewals at lower rates and lower rates on public fund deposits. We expect deposit costs will be down in the fourth quarter following expected rate cuts in October and December. For the quarter, we had $2.4 billion of CD maturities at 3.69% that were repriced at 3.58% with a strong 88% renewal rate. CDs will continue to reprice lower in the fourth quarter given maturity volumes and anticipated rate cuts.

As shown on Slide 11, EOP deposits were down $387 million, mostly reflecting $269 million in seasonal reductions of public fund balances. DDA balances were down $334 million including an $83 million reduction in public fund DDAs. Retail time deposits were down $145 million, but interest-bearing transaction deposits were up $278 million. Our updated guidance is included on Slide 20, and as mentioned, includes 2 rate cuts of 25 basis points in October and December. For the third consecutive quarter, our criticized commercial loans improved, decreasing $20 million to $549 million. Nonaccrual loans increased modestly to $114 million. Net charge-offs were down this quarter and came in at 19 basis points. Our loan portfolio is diverse, and we see no significant weakening in any specific portfolio sectors or geography. Our loan reserves are solid at 1.45% of loans, consistent with last quarter.

We expect net charge-offs to average loans will come in at between 15 and 25 basis points for the full year 2025. Lastly, a comment on capital. Our capital ratios remained remarkably strong with growth this quarter due to our higher earnings levels. We bought back about $40 million of shares consistent with prior quarter. We expect share repurchases will continue at this quarter's level in the fourth quarter of 2025. Changes in the growth dynamics of our balance sheet, economic conditions and share valuation could impact that view. I will now turn the call back to John.

Thanks, Mike. Let's open the call for questions.

[Operator Instructions]

We'll take our first question from Michael Rose at Raymond James.

Maybe we can just start on loan growth. I think last quarter, you guys had talked about a mid-single-digit or 5%-ish growth in the back half of the year. Certainly, I understand there's been some ongoing paydowns and just wanted to get a better sense of -- I know SNCs are at 8.9%. You've talked about 9% to 10% on a go-forward basis. So we're at the low end there. It looks like health care has had 2 down quarters in a row. Can you just give some context on are we near or nearing the end of payoffs? And then how should we think in light of relatively solid production, assuming those paydowns were to slow, what initial 2026 growth could look like [ because ] the underlying production has been pretty solid.

Sure, Michael. Thanks for the question. This is John. I'll try to put all that together and certainly, you have a chance to redirect me if I miss any of the points. But first, just talking about loan production. I think I mentioned in the prepared comments that loan production was up 6% over prior quarter and a healthy 46% over the same quarter a year ago. So really, all of the production level that we're getting is in line with our expectations, and in fact, was stronger than last quarter when we had a little bit higher end-of-period growth.

So when you look a little under the covers, the average loan growth numbers are quite consistent from Q3 to Q2, up, call it, about $180 million between -- or for each of those 2 quarters. They just had different in the period numbers. That said, there are several different categories that you mentioned that are either growing as well or better than expected and some underperforming.

So for the quarter, and we talked about this on the same call a quarter ago, we'd like to see a little different mix and the growth categories that would command a little better yield as we go into the end of all the deposit repricing benefit that may be back with rent decreasing. So first, owner-occupied real estate was an area of interest, that grew about $144 million. Investor CRE also grew about $135 million. That enabled equipment finance to come in a bit lighter at 50. And as you remember, we get a better yield on the first 2 categories than the third.

So really good production, very solid production in the areas that we wanted to see with good deal flow and it made its difference in the yield of all the new business. So the contrast -- I'll kind of run through them to give you better flavor. First line utilization was ticked down about 90 bps. That was about $50 million. That was almost entirely due to large industrial projects that got done a little faster than expected. I mean, those projects fund up and then get paid down and the combination of really good weather throughout the last several months and just good engineering led those projects to finish a little faster.

So those paydowns came a little bit quicker than expected. But then the bigger component was we had a number of large client -- core client sales to larger organizations upstream that occurred during the quarter. Those happened every quarter, but it was a little bit higher than normal. And then our old friend, private credit and private equity, did take down a few of the health care deals that I would have expected to be closer to flat this quarter. So it's sort of a tale of ins and outs. The production level was exactly where we expected to the organic growth plan, maybe a little better. The paydowns were likewise heavier. So that brings us to what to expect. I mean, obviously, a mid-single is where we want to be. We think we can fund that with very high-quality deposits that are lowering cost at that rate. We're a little over 3% right now at the growth pace we're at, needs to be closer to mid-singles. And the -- I want to be really realistic about the paydown environment. In your question, you said, when do we think that's over. I don't think paydowns are ever are going to diminish when we have this good of an environment and this many players interested in the southeastern part of the country.

So what that means is we'll have to continue running the playbook, which is a lot of hustle but also additional offensive players deployed to take that production level up another couple of hundred million a quarter. Right now, we're running about $1.8 billion per quarter. It needs to be about $2 billion, maybe a little north of that to generate a really consistent and dependable quarter-over-quarter 5% annualized growth rate. So certainly, paydowns could go down. But if we think about money rates burning down or going down, and then all these occupancy improvements that we're seeing across the multifamily space, I think it's unrealistic to think they're going to just go away. They may temper a little bit. But we're going to assume as we go into 2026, that paydowns remain high and boost production to cover it running the same disciplined playbook. And what I discipline -- when I refer to that, I mean pricing discipline, credit discipline, concentration discipline and continue running the playbook this led us to have superior profitability. If I missed any of your points, please redirect me.

No, John, that was a lot of color. I really appreciate it. Maybe just one follow-up for me. I did want to kind of address the capital question. I know you guys have talked about over time running CET1 11% to 11.5%. You talked about the buybacks this quarter about $40 million, continuing at this pace, at least for the next quarter. But capital -- CET1 was still up a tick. I know there's some AOCI recovery in there, too. But I guess can you talk about the ability to maybe do more on the repurchase front? I know you have the outstanding program, but if you were to get through that over the next quarter or 2 or maybe 3 quarters would you look to re-up that? And then I think there's a pervasive view out there that you guys are looking at a deal potentially a larger one. Can you just address your thoughts around M&A and now given the environment that we're in.

Michael, this is Mike. I'll address that question. And the last part first, around M&A. So our stance on M&A hasn't changed despite what you may be hearing out there. We're not really focused on that right now at all. We have talked about being opportunistic as kind of time goes by and opportunities present themselves. But aside from that, nothing has changed. So that's first and foremost. As far as continuing to look at capital priorities and the way we think about being proactive in terms of deploying capital again, a lot -- not a lot has changed really in the last quarter or so.

I know this notion maybe exists that -- and we've asked the question around where we feel comfortable operating the company and the answer is for common Tier 1 to be in the range of 11% to 11.5%. But that does not mean there's an active program to reduce our capital to those levels. Instead, we would like to deploy it in what we would describe as meaningful ways. And the first priority, as it's been for many quarters now, continues to be to deploy capital in terms of organically growing the balance sheet. We have not been able to grow loans, as John mentioned, this year as much as we would have liked to.

And having said that, as we move into '26, the effort is going to be there to deploy that capital in terms of organic growth. We do have the 5 branches that we're going to open in the Dallas region late this year, early next year. And the potential certainly exists for us to deploy capital in that manner in other markets. As far as returning capital to shareholders, I mean that's a great point that you make around the buybacks. And certainly, something we could look at in coming quarters is to incrementally increase the level of buybacks. But for now, for the fourth quarter, I would assume that we would buy back pretty much the same level we have in the second and third quarter in terms of how much capital we actually buy back in terms of dollars.

And then certainly, as we've talked about many times in the first quarter in January, we feel pretty certain that we'll have a discussion with the Board around looking at the dividend. So all of those means of deploying capital and being proactive in terms of how we manage it, are still top of mind and things that will continue to do going forward. So hopefully, that makes sense.

We'll move next to Ben Gerlinger at Citi.

I know you don't want to give a '26 guide, but on Slide 7, you kind of laid out the investment opportunities for further growth at branches and just the future for Hancock down the road. So when you guys think about the numbers that you put on those bullet points, so $8.5 million for revenue and then $6.2 million for facility expansion. Is that kind of implying that like basically roughly $15 million or so spot to spot expense growth of '25 -- 4Q '25 into '26? Or how should we layer in expansion and investment down the road? Like obviously, the opportunistic on hires, especially with the disruption from M&A in the Southeast. But just kind of what you have in front of you, how do you guys think about that?

Yes. So Dan, when we look at Slide 7 and talk about the numbers you just mentioned, those are kind of annualized numbers of what we expect to spend this year on things like expenses related to hiring new revenue producers and in the new facilities in Dallas. So again, those are kind of annual run rate numbers. But the point is well taken, as I mentioned, I think on the question -- the previous question is, when we look at '26 and beyond, we fully intend to continue to make these kinds of investments in other markets. So again, when we talk again in the mid part of January after fourth quarter earnings, we'll talk about our guidance with '26 and the same level of detail that we always do. And we'll talk about some of these investments that we're planning for next year.

Got you. Yes, not I figured. You probably want to save it for January, but worth the shot. I just wanted to clarify on the forward guide, I know you have 1 quarter remaining. There's no change across the board for PPNR. I assume -- it basically kind of implies lower end of revenue, higher end of expenses to get to that new range. Am I missing something beyond that?

No, that's right. And again, you get to the point where there's 1 quarter to go. And when you're talking about annual guidance, it's not very difficult to kind of solve for that 1 quarter. But I think if you look at our numbers for the third quarter, 2 of the areas that we really outperformed was fee income growth, as John kind of mentioned in his prepared comments and then also controlling expenses. So I think as we think about the fourth quarter, what you can expect to see is in terms of fees, probably not the same level of growth in the fourth quarter that we had in the third quarter. And then for operating expenses, the same thing kind of applies but in the other direction. So I think the expense growth in the fourth quarter will be a little bit more than what we saw in the third quarter. So if you put all that together, it does lead you to conclude that the PPNR growth will probably be in the 5% to 6% range and probably a little bit of a bias toward the upper end of that 5% to 6%.

Got you. Appreciate the time.

Ben, this is John. Just a little bit more detail on that topic. In terms of next year, we'll wait until January. But since it was worth a shot, I'll give you this. The -- and I mentioned this in the prepared remarks, the paydown environment this year has been higher than we anticipated. Our production has been better than we anticipated. So as we go into next year, any expense growth that you see will be heavily weighted towards the addition of more offensive players to ensure that we get -- I mean, I want to be at the end of every quarter, sitting on pins and needles looking at that loan growth number. I'd like to kind of have it in the bag when we start the quarter. And that's going to happen because we have more players out there hustling business. I like the hustle of our current team. We just need more players. And so -- so I think when we get to next year, we're going to talk about a more aggressive run rate of bankers, then we're out of annualized 8.6% run rate now needs to be well north of 10% to have that surety and growth.

And then also in terms of branch locations, a couple of quarters ago -- this isn't new news, but a couple of quarters ago, Mike answered 1 of those questions around about the same plan for additional offices per year until we need to let them catch up. And so that would imply that you may see some of the same general comments around new office locations for '26 as we talked about in '25. That's not new news. It's just been a while since we talked about it.

In terms of that fee income category Mike mentioned, just as a pointer, we've got a really great book of fees. I love talking about it. I won't share anymore in case somebody else wants to ask questions about fees other than this. But the chunk of our fees that are more transaction-related around specialty fees and syndication fees, derivative fees, some of the SBA fees as well as some of the fees we enjoy on the wealth management side. About the time we get to Thanksgiving, that environment pretty much pulls back for the holidays. So we really only get about a half quarter solid run rate for transactional fees versus the full quarter. And so that's the -- so the annuitized fees are going to come in for Q4, probably just like they did. Q3, we may see a little less run rate on the transaction-related fees because of the holidays. Does that make sense?

Yes.

We'll move next to Casey Haire at Autonomous Research.

Great. Just I wanted to follow up on the previous question, just about the guide. I know it's only one quarter, but if the NII guide, I mean all the -- of all the line items, NII fees, expenses imply some pretty sizable moves. I guess just starting with the NII, if I'm reading this right, you have it going from the low 280s to almost $300 million or $297 million. I'm just wondering, like it doesn't sound like -- I know NIM is up, but like what I'm -- what is the driver behind what's a pretty significant move quarter-to-quarter?

Yes. I don't know that we're going to see an increase quite that high, Casey. We have something, I think, a little bit more modest. So again, the guide year-over-year is to come in at 3% to 4%. And I think that the bias will be definitely toward the lower end of that range. We do expect to have a pretty good quarter in terms of potential NIM expansion. When I say a pretty good quarter. I'm talking about a handful of basis points expansion. And of course, the third quarter, we were flat. But I don't know that I see the kind of increase in NII that you're referring to.

Okay. All right. And then just the paydown pressure that you guys are seeing, what is -- where are you guys -- I mean, like I'm hearing private credit a lot. I know it's difficult to kind of quantify our size. But like is it -- how much of private credit pressure is coming on the paydown side? Is it all of it? Is it some of it? Or is it just trying to quantify that pressure?

Casey, this is John. I'll tackle that one. In the list of contracts I mentioned before, the private credit/private equity takedowns were about in line with what we've been experiencing. That really wasn't a -- it was higher, but it wasn't a lion share of it. The primary drivers were the $50 million reduction in line utilization through the industrial contractor paydowns. So those are not lost clients, these projects completing a quarter earlier than anticipated. And then the number of organizations that we bank fully that's sold to upstream organization, not private credit, was the highest we've had really in several quarters, maybe the last couple of years. So there was a driver well in excess of $100 million in reductions from that alone that really made the difference between about a 5%, 5.5% end-of-period growth rate and the numbers that we actually announced. Does that answer your question?

Yes.

So I would anticipate the private credit run rate to be about the same depending on the macro environment. I would certainly expect the amount of paydowns from industry consolidation to decline. But in my comments earlier, I don't want to bet on that is it going to '26. So the adding of additional players to generate loans to offset that potential as part of the recipe as we move into next year. Hopefully, that makes sense.

We'll go next to Catherine Mealor at KBW.

I wonder -- again just another question on the margin. You've given us the cycle to date betas on deposits, is there any reason to believe the next, let's just say, 100 basis points deposit and maybe even talk about loans, too, but the betas will be very different than what we've seen in the past 100 basis points of declines?

Yes. Catherine, this is Mike. Short answer is we expect to be pretty proactive or at least as proactive as we've been in the past in reducing deposit costs. So no big change, and we fully expect to come in and hit the numbers that we've kind of talked about as far as what we expect to do on a cumulative basis.

I know I only had a few weeks since the last cut, but can you give any kind of color around what you saw with the last [ '25 cut ]?

The most recent cut?

Yes.

Yes. I mean it came in. We were able to reduce deposit costs accordingly, and that's what we'll continue to do going forward. If you look at our promotional rates, the most current ones right now, our best rate is 3.85 for 5 months. Then we have 3.15 for 8 and 11, and then we've reduced our money market proactive rate to 3.75. So all of those have been reduce accordingly. And assuming we get 2 additional rate cuts, which is built into our guidance, we expect to be able to continue to reduce rates. We have a bit more in terms of CD repricing in the fourth quarter of about $1.7 billion coming off at about 3.89. That will go back on at about 3.59. We assume about an 86% renewal. So those are the dynamics that we're looking at.

Okay. Great. And maybe just within the same question. If you look at your variable rate loan yields, Dave have already started to come down a little bit, 3.58 to 3.52 quarter-over-quarter. Was that just from an impact from the most recent cut in kind of just a few weeks of that? Or was there any other mix change kind of already happening at play that we should just kind of be aware of and think about?

Well, when we look at our new loan rates on the variable side, we're actually up 1 basis point from 6.87% to 6.88%. So I think the dynamic that you're seeing, again, is mostly related to mix and just the pricing that we have to face like every other bank does out there in terms of customer impact and how competitive it is.

We'll take our next question from Gary Tenner at D.A. Davidson.

Mike, I appreciate the thoughts you just provided on the deposit beta side of things. Can you just maybe provide the spot rate as of September 30 on the deposit, just give us a jumping off point going to the fourth quarter?

In terms of our cost of deposits?

Yes.

Yes, it's 1.63% in September. And for the third quarter, we went [ 1.64% ] and our cost of funds in September is flat with the quarter at 1.59%.

Okay. Appreciate that. And then just as it relates to the increase in non-accruals quarter-over-quarter, anything in there just of note, is that a single credit of size or a collection of multiple [indiscernible]?

Gary, it's Chris Ziluca. Thanks for the question. I was feeling a little lonely over here. Yes. I mean it was really a mix of transactions that were in there, all of them in the C&I space for the most part. If you look at our consumer loans, for instance, we've been holding pretty steady from a nonaccrual standpoint despite some of the challenges that households and individuals are experiencing as it relates to kind of higher cost for household costs. So we feel pretty good about where we are on the consumer side. And I think really on the C&I side, not really on CRE, it's just really where we are in the cycle. I mean, there are higher operating costs for these companies. They are starting to kind of normalize in their performance and some of them are having issues, and we take them through the accrual, nonaccrual process and reserve accordingly, and we feel pretty good about where we have them from that standpoint as well.

We'll go next to Matt Olney at Stephens Inc.

Just on that last question on the credit front. On the criticized commercial loans, I think we continue to move lower on that front. Just looking for some color going forward here. Just trying to appreciate if you're confident that we'll see criticized commercial loans to continue to move lower or said another the way, what was the confidence level that we've seen the peak in criticized commercial loans a few quarters ago?

Yes. Thanks for the question. I think a lot of what we saw in the way of a buildup in criticized loans earlier in the last year was really kind of a function of how low we have gotten from a criticized loan perspective. I mean if you look at our historical performance criticized, off the back of the pandemic now 5 years ago, we were able to really kind of hold steady through the next couple of years before things started to kind of percolate from the standpoint of supply chain, higher operating cost, wage pressure, things like that, which started to kind of create a little bit of a migration just in general, but also then specifically in the criticized loan area. And in earlier calls, I kind of indicated that it does take somewhere in the neighborhood of 4 to 5 quarters for companies to kind of perform in a way that they could justify rehabilitation back to a pass rating or something better than where they are or seek alternate financing or position themselves in a way that they can seek alternate financing.

So I think we're seeing a little bit of that activity come to fruition. And I think it's a mix of both. I think we're seeing companies able to refinance away. And then we're also in a position where some of our customers are performing a little bit better off of some of the challenges they may have had earlier. And so we're seeing that. No crystal ball in the future, but we feel pretty good about a nice return to moderation in criticized loans.

Okay. And then I guess, switching gears. John, you mentioned trying to outrun the heavier loan paydowns with hiring some new loan producers. Can you just talk more about the opportunities you're seeing for the new hires so far this year? And I guess since we talked last time, we've seen a few more banks with pending sales in some of your growth markets. Just curious about the opportunities as you move into next year.

Sure. Thanks for the question. That's a fun topic. I mean everybody wants good bankers and everybody wants experienced bankers. And so the landscape is certainly competitive. And we have a couple of benefits that are maybe a little unusual. One of those is the fact that being a pretty heavy C&D bank as part of ICRE and having managed that overall number pretty low throughout the pandemic. We're one of the lower [indiscernible] concentration banks out there. So our organizations that may find themselves a bit full that may not be as aggressive in hiring out of disruption than we can be. We are actively looking for folks that meet our experience in credit risk acumen to join. And all of that is really in emerging markets. And so Texas, Florida, Tennessee, maybe even Georgia and the Carolinas are all places that our client sponsors do projects that we have the capacity to grow in. And so I would expect to have a good story there as we move into next year. And production ICRE is way up over last year, but it takes a little while in construction to get to our borrowings from the buyers or the owner's equity, but we'll begin to see that as we get into next year.

The other area or just conventional bankers that are business purpose from business banking all the way up to middle market, and that's primarily going to be where we already have branch coverage, but we don't have high market share, and that pretty much means Central Florida and really all things Texas. I think the opportunities are certainly there. And as we get toward the beginning of the year and sort of the restart of how people feel about how their year is going to look. Those in disrupted organizations have their antenna up, and you have to have the earnings firepower which we have to take people out of agreements that may be they have to leave a little money on the table to jump ship earlier than when the final assimilation of the 2 organizations has occurred.

And that same thing we just apply to banks that maybe don't have disruption, but bankers may be looking for a place to where certainty of deal closure may be a little bit better. So we plan to be aggressive in terms of adding that firepower. And hopefully, hope is not a plan, but if I'm a little bit too cautious on the competitiveness and the paydown environment next year, then that would bode well for net growth, maybe above what we're contemplating. But I don't want to take that risk and not hire aggressively while the disruption is out there.

So I think I said earlier, we ran an 8.6% net banker growth number for the previous 12 months. And that's -- we wanted 10%, so we didn't meet what our expectations were for the past 12 months, and that's going to have to get a good bit bigger between now and this time next year to have surety in that mid-singles growth quarter-over-quarter throughout next year. So we've got a little bit of hiring work to do there. I feel confident in it. We've learned an awful lot this year about who who's easier to pick on, and those are harder to pick on. And so we'll deploy that knowledge as we move into next year. Did I answer your question about it if I didn't give you enough detail.

Thank you.

And we'll go next to Brett Rabatin at Hovde Group.

Wanted to go back to deposits for a second. And just if you look at the guidance, the low single digit are up from end of year in '24, it implies pretty strong growth in the fourth quarter. And I know there was some seasonality in 3Q related municipal deposits and other things, but any color on the growth in the fourth quarter expectations? And then, John or Mike, I was just hoping to get -- you've given a lot of color on deposit trends, but I was just hoping to get maybe how you think about the competitive landscape? And just if that's gotten tougher, easier, the same, I know deposit competition is always pretty robust.

Yes, Brett, I'll start with the deposit question. So yes, the fourth quarter seasonally is usually a pretty good quarter for us in terms of deposit growth. We're usually able to grow the public fund book somewhere between $200 million and $300 million. No reason to expect that, that wouldn't be the case this year. That growth tends to be weighted a little bit more towards the end of the quarter. And then on DDAs, again, the fourth quarter seasonally is usually a pretty good quarter for DDA growth. We expect that to be probably in the $200 million range.

So if you put those 2 together, you're getting close to the $400 million to $500 million range in terms of deposit growth, and that should put us around somewhere between 3% and 3.5% year-over-year. So again, probably low single digits. And related to the question about competitive pressures on deposits and deposit pricing, honestly, no real change from our perspective in the last quarter or so. The cycle for whatever reason seems to be a little bit better behaved compared to prior cycles. I think some of that has to do with in our markets, maybe the absence of some irrational players that are no longer with us. Ford everis and the trade unions seem to be behaving a little bit less irrational, I think that's contributed to the overall basically non-big issued deposit pricing quarter. And no reason from right now, we expect that to change with 2 rate cuts on the horizon and maybe another 2 in the first half of next year.

Okay. That's helpful. And then the other question was just around the organic growth plan, particularly the Dallas operation, and you're obviously pushing pretty hard with some new openings of facilities, et cetera. Can you give us any idea of the goals you might have for that market over the next few years. And then it sounds like you might also be thinking about doing a similar approach in some other MSAs. Just any color on that would be helpful.

Sure. I'll take that and then if Mike wants to add some color, he certainly can jump in. The number of offices that we have in the Dallas MSA today is about the same. I mean, today, it will more than double over the next several months. But that number of offices is about the same number as we got from the old Mid-South transaction back right before the pandemic. However, the book has completely turned over and is today very much driven toward business-purpose clients, both on sides of the balance sheet and has been growing at north of a 40% CAGR throughout the pandemic. I would anticipate that growth percentage to go up even though the denominator is larger by virtue of not as much as the branches, but also the staffing complement in those locations, which is slated to be a combination of both financial advisers out of wealth, where we have a terrific track record in penetration of fee income into customer relationships and then also adding business and commercial bankers in and around those locations.

So the -- where those locations are, provides a little bit more of access to client feeling more local. There's a lot of disruption going on in Dallas today and it will be worse in turn well, it'll be better next year for us in terms of that disruption manifesting into opportunities. So not quite ready to talk about additional locations and where they would be, but we have 4 different MSAs right now that we are debating in terms of mid to late next year, laying down a number of additional locations -- additional financial services operations, but we really want to see kind of what disruption may get announced here in the next couple of months before finalizing that plan. But I'm sure about January, we'll be able to talk about that with a little bit more definition. So -- but I think you read the tea leaves correctly, Brett.

Dallas, and particularly North Dallas, is a very important market to us, not just because of the growth rate, but the quality of the business and one of our aspirational goals that is becoming more in focus as the quarters go by is becoming the best bank in the Southeast for privately owned business. And that's a big goal to have. It's quite aspirational. I think we're one of the best banks today, but not the best, and we aspire to get there. And in markets like that where you have a lot of middle-sized to smaller business, being able to be really good and fast, have low amounts of air and not waste people's time is really a big sales point for moving relationships and talent. And so I think that will be a good play.

You didn't specifically mention the fee income piece, but since you brought up the competitive issues before, I'll mention it, and that we set out a number of years ago and we talked about investing in fee-generating business on just about every call, it seems like for about 1.5 years. And we see all that benefit this year. And in fact, just in the area of investments, annuities and insurance, which was a pretty meager producer back 4 or 5 years ago, 7 of the last 8 quarters, that's throwing off $10 million in top line revenue. And in the 1 quarter we missed it, we only missed it about $200,000. So I think that's been established as a core competency and we have just begun to tap those types of categories in the Texas area through adding FAs this year, and we'll add more next year. So between that, and the treasury advisers, that will be the secret sauce to growing deposits and fee income as we move into 2026. Did I give you what you needed there? Or do I miss it.

Yes. No, Yes. No, that's very helpful, John. And yes, for sure, the annuity fees have certainly been a star for the fee income bucket. I appreciate all the color, guys.

And that concludes our Q&A session. I will now turn the conference back over to John Hairston for closing remarks.

Thanks, everyone, for your attention. Thanks all for moderating the call. We look forward to seeing you on the road very soon.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.